What is a market economy ? This is a solution to help businesses overcome many disadvantages of outdated economic models and promote business development. In the article below, let's learn in detail about what a market economy is and related content with 1C Vietnam!

1. What is market economy?

Market economy is an economic system in which production activities are determined by the interaction between market participants (producers and consumers). According to the principles of market economy, decisions on production, prices and distribution of goods are formed based on the law of supply and demand and develop in a mechanism of equal and stable competition.

In general, the market economy has some outstanding features compared to other economic models. Specifically as follows:

• The law of supply and demand in a market economy determines the level of production and prices of goods/services.
• Market economy creates economic efficiency and each entity will decide on its own business activities.
• Support free businesses to pursue profits by creating new products, while businesses can fail if they do not understand the market economy properly.

2. Examples of market economy

To help businesses better understand the concept of market economy , 1C Vietnam will clearly present illustrative examples on this topic below:

• The United States: Is a country with the most developed market economy in the world today. It can be seen that this country's economy is operating based on the principle of free competition, changing prices according to the law of supply and demand.
• Germany: A typical example of a market economy with government intervention. In addition to freedom of business and competition, the German government still controls and manages a number of strategic industries. At the same time, it provides appropriate support policies for businesses.
• Japan: A country that is typical of the market economy model with strong government intervention but still adheres to the principles of free business and free competition. The Japanese government sets out policies for industrial development, promotes investment in science and technology and builds infrastructure.
• Vietnam: This is a socialist-oriented market economy model with many participating components, in which the state plays a leading role, is responsible for orienting the economy and building socialism.

3. What are the advantages and disadvantages of a market economy?

The market economy offers many opportunities for business and investment. However, this model still has many shortcomings in social balance.

Here are some of the prominent advantages and disadvantages of a market economy:

4. Main subjects of market economy

A market economy will have 6 main subjects, each subject has its own tasks and roles to ensure the market activities run smoothly and effectively. Below are the roles of each subject:

4.1 State

The State plays an important role in ensuring the stability and development of the market economy in basic functions such as:

• Manage and troubleshoot market issues.
• Building economic institutions.
• Providing public goods.
• Pay attention to external factors affecting the market economy.
• Control monopolies and distribute private activities, and consider the redistribution of wealth in society, ensuring equality and stability of the economy.

4.2 Supplier

Suppliers are important entities in the market economy, playing a decisive role in economic development, promoting production and improving people's lives. Manufacturers will use capital, labor and many other factors to create products/services and directly provide products/services to the market.

Some of the roles of suppliers include:

• Create products/services to serve consumer needs.
• Allocate production resources, promote market economic development.
• Solve employment and create income for workers.
• Promote competition, improve quality and value of products/services.

4.3 Customers

This is one of the important subjects in the market economy, they are the ones who directly create demand and decide whether to buy products/services or not. This affects the production and business process of enterprises, contributing to promoting competition and improving the quality of products/services.

4.4 Banks and financial institutions

Banks and financial institutions are economic organizations operating mainly in the financial and supply sectors such as: Capital mobilization, lending, payment, insurance, etc. The financial services of this group play an important role in promoting capital circulation, financial allocation and supporting production and business of other economic entities in the market economy.

4.5 Employees

Workers are the name for all people who have the ability to work, including both physical and intellectual. They are the ones who provide labor for businesses, contributing to the production and business process. In a market economy, the labor force plays an important role in determining the output and quality of products, directly affecting the prices and profits of businesses in particular and the economy in general.

4.6 Intermediate unit

These are the subjects that act as a bridge between producers and consumers, contributing to making the market economy more flexible. These subjects can be individuals, businesses or international organizations such as multinational corporations and export markets.

5. Laws governing market economy that businesses need to know

After understanding what a market economy is, businesses need to determine the laws governing the market economy in order to make accurate plans in production and business activities and improve customer relationships. Below are the laws affecting the market economy:

5.1 Law of value

According to the law of value, the value of each commodity or service will be determined by the labor force that produces it. At the same time, the price of the product/service will be determined by the market, not by the seller or the buyer. Thereby, the law of value has helped businesses explain price fluctuations in the market, especially uneven fluctuations between products.

5.2 Laws of competition

Competition is inevitable in a market economy. To be successful in sales, businesses need to clearly identify the advantages of the products/services they provide in order to develop appropriate business strategies. Some sellers will reduce the price of goods to benefit buyers. Meanwhile, buyers will increase the price of goods, creating convenience for sellers.

5.3 Law of supply and demand

These are two activities that are closely linked and have an impact on each other. In which, supply is the activity of producing and supplying goods; demand is the need to use goods and the ability to pay of consumers.

In a market economy, the principle of supply and demand will be adjusted automatically. If there is a change in supply or demand, the price will also change to ensure the balance and stability of the market. In addition, an increase in demand is also a sign of economic development, at the same time creating significant changes in production activities and resource use.

In general, predicting and responding correctly to changes in supply and demand is essential for businesses to maintain profits and avoid missing out on competitive opportunities.

5.4 The law of surplus value

The law of surplus value is an important principle in a market economy, helping businesses and consumers understand how to produce and distribute the value of products/services. According to the law, the value of a product will not only include the value of raw materials but also the value of surplus labor.

In any business, the seller will receive surplus value compared to the value of the goods to pay for initial costs, reproduction and profit. Through the law of surplus value, businesses will better understand the relationship between suppliers of goods and workers, hierarchy and equality in society and fluctuations in the production process.

5.5 Law of money circulation

In a market economy, money in circulation represents purchasing power and the total quantity of goods/services represents selling power. The purchasing power of circulating money depends on many factors, such as: Inflation rate, bank interest rates, economic fluctuations... In particular, the law of money circulation will affect interest rates and prices as well as the financial market, including the stock market and the foreign exchange market.

In addition, inflation regulation is also one of the important goals of the law of money circulation. If the money circulation increases too much, it can lead to inflation and vice versa. Therefore, the government and central banks have applied monetary policy management tools to maintain stable inflation.

Thus, 1C Vietnam has worked with businesses to explore the concept of market economy , classify subjects and the laws governing the market economy. It can be seen that understanding the market economy will help businesses and consumers perform well, improve economic efficiency and limit the negative impacts of the market economy on business activities. If your business has any further questions, please contact the hotline 0247.108.8887 for advice!