Market Economy

In market economy, two societal units are very important: the individual and the firm. Individuals own resources and consume products, while firms use resources and produce products. The market mechanism involves an interaction of price, quantity, supply, and demand of resources and products.

The key factors that make the market economy work are consumer sovereignty and the freedom of the enterprise to operate the market. As long as both units are free to make decisions, the interplay of supply and demand should ensure proper allocation.

The market economy has been highly successful in most industrial countries, especially in the United States. A perfect market economy does not exist in the United States owing to three major factors: large corporations, labour unions, and the government. The large corporation can reduce market procedures somewhat by exerting control over the purchase of resources or the resale of products. Because of the large size of the firm and relative smallness of each individual shareholder, there is a wide gap between ownership and control of decision making. Decisions may or may not be strictly motivated by the market.

Labour unions evolved to response to the power exerted by the owners and managers of business over the labour market. Tremendous benefits in terms of salaries, fringe benefits, work conditions have been won by the unions, but market forces have been disrupted seriously. Many unions control entry into the work force and restrict the freedom of workers to change occupations in response to supply and demand.

Centrally Planned Economies

In centrally planned economies the government tries to harmonize the activities of the different economic sectors. In the extreme form of central command, goals are set for every enterprise in the country and must be followed. The government determines how much is produced, by whom and for whom.

At the heart of a centrally planned economy is its blueprint, generally a five-year plan. Based on this overall plan, special targets are set each year for each sector of economy.

Mixed Economies

By definition, no economy is purely market determined or centrally planned. The United States and the former Soviet Union represent different ends of the spectrum of mixed economies. In practice, however, mixed economies generally have a higher degree of government intervention than is found in the United States and a greater degree of reliance on market forces than is found in the former Soviet Union. Government intervention can be regarded in two ways: actual government ownership of means of production and government influence in economic decision making (J. D. Daniels, L. H. Radebaugh. International Business. Environment and Operations. N. Y.: Addison-Wesley Publishing Co., 1989).

 

Vocabulary list:

to define — определять, давать определение;

definition — определение;

mixed — смешанный;

allocation — размещение, распределение;

allocation of resources — распределение ресурсов;

property — собственность;

ownership — владение, собственность, право собственности;

private — частный;

public — государственный;

postal service — почтовая служба;

utilities — коммунальные службы;

to consume — потреблять;

supply — предложение;

demand — спрос;

adequate — соответствующий;

to purchase — приобретать;

gap — пропасть, разрыв;

to evolve — возникать;

fringe benefits — дополнительные льготы;

Text 2. Government's Role in the Economy

While consumers and producers obviously make most decisions that mould the economy, government's activities have at least four powerful effects on the US economy.

Direct services

Each level of government provides direct services. The postal system, for example, is a federal system serving the nation, as is the large military establishment. By contrast, the public education systems are primarily paid for bystate, county or city governments.