The social science that is responsible for studying the processes of production, exchange and consumption of products and services is known as economics. The term has its origin in the Greek language and means “administration of a house”.
The market, on the other hand, is the environment that allows the development of the exchange of goods and services. It is a social institution through which sellers and buyers enter into a business relationship. According to Abbreviationfinder, FME stands for Free Market Economy.
These two concepts allow us to approach the notion of market economy, which refers to the social organization designed to facilitate the production and consumption of goods and services arising from the game between supply and demand. The State intervenes in the market economy by guaranteeing access to certain goods and imposing taxes and rates according to social needs.
This means that, although the market economy is usually considered the same as the free market, said freedom is not absolute since the State participates in the regulation of basic prices and through other decisions. Liberalism maintains, instead, that the State should only be involved in the free market to guarantee the absence of monopolies.
The concept of market economy, on the other hand, has transcended capitalism to derive in terms such as socialist market economy or market socialism, which supposes a combination between capitalism and socialism that has the market as the main economic institution. There is talk of a mixed economy to name state and private participation in economic regulation.
Economy, efficiency and opportunity cost
The economy’s fundamental objective is to satisfy the needs of individuals and societies; These needs can be material or immaterial. For this purpose there are productive activities, which offer specific goods and services that will solve said requirement.
The economy ensures that the distribution of these goods and services is correct; getting them to satisfy a larger number of people. For this purpose it is necessary to take into account a series of important laws. They are based on the idea that all resources are scarce, therefore it is necessary to make good decisions to know how they will be best used.
One of the most important concepts that derives from this idea is that of efficiency. It is said that for an economy to produce efficiently, it must start from the basis that in order to improve the well-being of one person, it is necessary to worsen that of another, so that it must always seek to favor those with fewer possibilities and subtract profit from those who more
It is also important that decisions are always made that advocate a balanced production; that is, to manufacture what is necessary, neither scarcely nor abundantly. Taking into account, in turn, what methods will be used in production, with what resources and what technology will be developed and how much the whole process will cost, based on what can be earned from it.
To conclude, it is important to mention another concept that is opportunity cost. This term refers to the quantity of goods that it is necessary to stop producing in order to produce one more unit of another. That is, it refers to the value of the good or service that is given up to bet on another.
The market economy is the one that ensures that production in all its aspects works and collaborates with the well-being of a country or territory. It also allows good decisions to be made regarding commercial relations with other groups whose objective is to enhance the production and quality of life of the society it represents.