Market economy
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By market economy we understand the organization, allocation of the production and consumption of goods and services that arises from the game between supply and demand. The defining characteristic of the importance of the market economy is that decisions about investment and the allocation of producer goods are made through individuals who operate in the markets.
The term is equivalent to that of the free market.1 It is necessary to note, however, that there is no term, especially at the theoretical or general level, about what the allowable balance of state intervention would be without a market economy becoming an economy. addressed: “But there are certain aspects of the market economy that remain controversial. In the first place, there is some controversy regarding which activities should be left in the hands of the State and which can be awarded to private initiative. ”2 3 4 5 6 7 8
Here is a very clear difference raised by Wilhelm Röpke when classifying state interventions as "compliant" and "non-compliant". The first are those that tend to ensure the functioning of the laws of the market. As an example, we can cite antitrust legislation. The second are those that interfere or block that operation. Price and wage controls are among the most common of these interferences. The market economy, as it is conceived within modern liberalism (see "social market economy"), accepts "conforming interventions" and, moreover, considers them necessary; but rejects "non-conforming interventions."
Market process
In a market economy, producers and consumers can interact in the market. It is assumed that both types of economic agents assume the price of goods as a given data (that is, they are "price acceptors" - "preneurs de prix" in French; "price takers" in English. See Origin and assumptions in "Walras's Law".) And, from there, they make their production and consumption decisions, seeking to maximize profit in the case of suppliers and the utility function (satisfaction) in the case of consumers. The participation of these actors, offering and demanding quantities of goods and services, in turn alters market conditions, affecting the evolution of prices.
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