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 This is a solution to help businesses overcome many disadvantages of outdated economic models and promote business development.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 with 1C Vietnam in detail what a market economy is and related content!

1. What is market economy?

A 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 a market economy, decisions on production, prices and distribution of goods are formed based on the laws of supply and demand and developed in a stable, equal competition mechanism.

In general, the market economy has some more outstanding characteristics compared to other economic models. 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 subject will decide for himself/herself on his/her business activities.
• Support businesses to freely pursue profits by creating new products, while businesses can fail if they do not properly understand the market economy.

2. Example of market economy

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

• United States: Is the country with the world's leading developed market economy 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: Is a typical example of a market economic model with government intervention. Besides free business and free competition, the German government still controls and manages a number of strategic industries. At the same time, provide appropriate support policies for businesses.
• Japan: A country characterized by a market economic model with strong government intervention but still adhering to the principles of free business and free competition. The Japanese government proposes industrial development policies, promoting investment in science and technology and infrastructure construction.
• Vietnam: This is a socialist-oriented market economy model, with many participants, in which the state plays the leading role, responsible for directing 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.

Below are some outstanding advantages and disadvantages of a market economy:

4. Main subjects of the market economy

A market economy will have 6 main subjects, each with their own tasks and roles to ensure that market operations 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 fix market problems.
• Building economic institutions.
• Provide public goods.
• Pay attention to external factors affecting the market economy.
• Control the monopoly and distribution of private activities, and consider the redistribution of wealth in society, ensuring equality and stability of the economy.

4.2 Suppliers

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 roles of suppliers include:

• Create products/services to serve consumer needs.
• Allocate production resources, promote market economic development.
• Create jobs and create income for workers.
• Promote competitiveness, 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 impacts the production and business processes of businesses, contributing to promoting competition and improving product/service quality.

4.4 Banks and financial institutions

Banks and financial institutions are economic organizations operating mainly in the field of finance and supply such as: Capital mobilization, lending, payment, insurance,... The group's financial services This plays 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 physically and mentally. 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 output and product quality, directly affecting prices and profits of businesses in particular and the economy in general.

4.6 Intermediary unit

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

5. Rules governing the market economy that businesses need to know

After understanding what a market economy is, businesses need to determine the rules that govern the market economy to make accurate plans in production and business activities and improve relationships with customers. client. Below are the rules that affect the market economy:

5.1 Law of value

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

5.2 Competition rules

The element of 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 to come up with appropriate business strategies. Some sellers will reduce the price of goods to benefit the buyer. 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 linked and have an impact on each other. In particular, supply is the production and supply of 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 supply or demand changes, prices will also change to ensure market balance and stability. In addition, increased demand is also a sign of economic development, while creating significant changes in production activities and resource use.

In general, predicting and responding properly 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 clearly understand how to produce and distribute product/service value. As a rule, product value will not only include the value of raw materials for production but also the value of surplus labor.

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

5.5 Rules of money circulation

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

In addition, regulating inflation is also one of the important goals of the law of monetary circulation. If circulating currency increases excessively, it can lead to inflation and vice versa. Therefore, the government and central banks have applied monetary policy management tools to maintain stable inflation levels.

Thus, 1C Vietnam has explored with your businesses the concept of a market economy, the classification of subjects and the rules that govern the market economy. It can be seen that a clear understanding of the market economy will help businesses and consumers do their jobs 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 hotline 0247.108.8887 for advice!