The Perfect Market Economy

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A market economy according to Rutherford (1992) is an economy “with extensive private ownership of capital and allocation of goods and services by the price mechanism in the absence of government intervention” (Chin and Guan 66). A perfect market economy has perfect competition with a large number of sellers and buyers engaged in the trade of homogenous goods and services, with firms having the freedom of exiting and entering the market, with no intervention by government, there is perfect elastic supply of factors of production, and no transport costs (Chin and Guan 66). In this specified economy, there is efficiency in resource allocation as the production of services and goods is regulated by supply and demand. In this market, producers…show more content…
According to Langran and Schnitzer (37), price mechanism’s function is to offer a coordination method for multiple decentralized distribution and production units. This is because the market prices are a measure of the marginal benefits of services and goods. In this system, firms that maximize profits end up maximizing the difference between costs and benefits. Additionally, as the changes to technology, tastes, and availability of resources take place so does the market prices change directly to the resources. In theory, the market economy expects that profits and prices’ interaction to maintain a reasonable level in economic mistakes (Langran and Schnitzer 37). This is because profit is dependent on the selling price of services and goods and the cost of producing them, becoming an indication to business of what buyers are buying. Conclusively, profit is a critical factor for survival as it is a payment to the capital…show more content…
This is evident from the inability of the market to meet all conditions needed like perfect competition, leading to a market failure where there is inefficient allocation of resources (Chin and Guan 66). Competition under the law of demand is necessary as its forces the prices of goods and services to remain moderate and the efficient provision of goods and services, as illiustrated by the American economy. In theory, developed economies like America have experienced the perfect market economy especially during the Gilded Age or the late 19th Century. The economy was identified as such as it allowed the emergence of tycoons like John D. Rockefeller, who could accumulate vast amounts of wealth. In today’s America, the market economy is seeing a new class of tycoon that invests tastier snack and up to date computer program and makes fortunes on the good by ‘rent-seeking’ or patenting. In this market economy, the tycoon takes the biggest slice of the cake through an economic rent by receiving more for their capital, land, or labor. However, according to The Economist (1) this is not a perfect market economy as there is no perfect competition from the patenting and rent seeking on goods and services. This is because in a perfect market economy, there is perfect competition and rent is

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