Muhammad Fahd Zainal & Fairuz Muhammad Ramadhan_Market System_Economic Systems.docx - Economic Systems Market System Analysis Created By Fairuz

Muhammad Fahd Zainal & Fairuz Muhammad Ramadhan_Market System_Economic Systems.docx

This preview shows page 1 - 3 out of 5 pages.

/ Economic Systems Market System Analysis Created By Fairuz Muhammad Ramadhan 155020107121012 FACULTY OF ECONOMICS AND BUSINESS BRAWIJAYA UNIVERSITY MALANG 2016
Image of page 1
Market system A market economy is an economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's individual citizens and businesses. There is little government intervention or central planning. This is the opposite of a centrally planned economy , in which government decisions drive most aspects of a country's economic activity. The theoretical basis for market economies was developed by classical economists such as Adam Smith, David Ricardo and Jean-Baptiste Say in the late 19th and early 20th centuries. These classically liberal free market advocates believed that protectionism and government intervention tended to lead to economic inefficiencies that actually made people worse off. Market Theory Market economies work on the assumption that forces such as supply and demand are the best determinants of aggregate wellbeing. Strict adherents to the theory rarely engage in government interventions such as price fixing , license quotas and industry subsidies. Theoretical proponents argue that central planners could not possibly gather and analyze enough information to make the optimal economic decision for all participants. Instead, each rational person with perfect information and free will should be able to maximize his wellbeing given the set of options with which he is presented. Moreover, this allows individuals to attach different amounts of value to leisure, wealth, goods or future consumption. The personal economic value of these different aspects is known as utility. Detractors assert that the conditions that allow markets to function properly cannot hold in the real world. They contend that information
Image of page 2
Image of page 3

You've reached the end of your free preview.

Want to read all 5 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture