By using this site, you agree to the Privacy Policy and Terms of Use.
Accept
Icy Whiz
  • About Us
  • Business
  • Fun Facts
  • General Knowledge
  • Science
Reading: What Is The Coordinating Mechanism In A Market System?
Share
Icy WhizIcy Whiz
Font ResizerAa
  • About Us
  • Business
  • Fun Facts
  • General Knowledge
  • Science
Search
  • About Us
  • Business
  • Fun Facts
  • General Knowledge
  • Science
Follow US
© Foxiz News Network. Ruby Design Company. All Rights Reserved.
Icy Whiz > Blog > Marketing > What Is The Coordinating Mechanism In A Market System?
Marketing

What Is The Coordinating Mechanism In A Market System?

Anushree Khandelwal
Last updated: 2023/09/26 at 9:50 AM
Anushree Khandelwal
Share
8 Min Read

Market Economy is an economic system where private businesses produce their goods or provide services in an independent fashion, which is demand driven.

The ownership, management, and control of the operation are under private institutional arrangements, without any involvement of the government.

Table of Contents

  • 1. How does a Market Economy Operate?
  • 2. Invisible Hand Economics
  • 3. Types of Market Economy
    • 3.1. Perfect Competition
    • 3.2.  Monopoly
    • 3.3. Monopolistic Competition
    • 3.4. Oligopoly
    • 3.5. Oligopsony
    • 3.6. Monopsony
  • 4. Characteristics of the Market Economy
    • 4.1. Private Ownership
    • 4.2. Freedom of Choice
    • 4.3. Self-Interest
    • 4.4. Efficient Market
  • 5. Advantages
  • 6. Disadvantages
  • 7. End Notes: What is the Coordinating Mechanism in a Market System?

1. How does a Market Economy Operate?

Very simply, when customers purchase your product or service, you understand their inclination. So, to meet their stipulated demand you will increase production of the required goods.

Since, the profit earned is the main income the production is carried out in the least expensive way to maximize profit, and the goods and services are priced at the highest prices that they can quote.

Although, it does not get unfair because of the presence of competition which keeps a check on exorbitant prices.

What Is The Coordinating Mechanism In A Market System?
Image by HeungSoon from Pixabay

A zero percent involvement of the government in a market economy is more of a theoretical process.

All countries which operate with a market economy have a certain percentage of government interference, but not in a manner that exceeds the whole idea of a free market economy.

The involvement of the government ensures that all traders in the market get equal opportunities. The market rules apply equally across all sectors and all individuals irrespective of their status or rank.

A continuous and thorough system of taxation is maintained by the government and businesses, individuals, and markets are taxed accordingly to suffice for the welfare of people or for providing better public services.

2. Invisible Hand Economics

The invisible hand economics is a concept that was introduced by Adam Smith and states that the self-interest of individuals or their businesses leads to economic growth.

What Is The Coordinating Mechanism In A Market System?
Image by Mohamed Hassan from Pixabay

This can be explained in this way; demand is the driving principle for the prices of goods and services. If the availability decreases, the demand and price increase.

Hence, making demand and supply the invisible hand in market economies leads to the betterment of the economic outcomes.

3. Types of Market Economy

3.1. Perfect Competition

All businesses sell the same products, the prices of which are not influenced by market share.

Complete transparency in all operations and prices are not determined by them. The new players also do not face any problems.

What Is The Coordinating Mechanism In A Market System?
Image by Mohamed Hassan from Pixabay

3.2.  Monopoly

When only one player dominates the whole market without any competition and provides the goods to the consumers.

3.3. Monopolistic Competition

If in a sector, a set of companies produce similar but not the same products, and sell them to the buyers they can definitely control the pricing as they’re monopolizing the entire sector, and beating competition across the complete product line.

What Is The Coordinating Mechanism In A Market System?
Image by Nattanan Kanchanaprat from Pixabay

3.4. Oligopoly

Given there are some products or services which are exclusively provided by some sellers, they can then cooperate with each other for maximizing their profit; they control the entire market in this manner.

3.5. Oligopsony

When the buyers are few and very powerful, other businesses are numerous it is called oligopsony.

3.6. Monopsony

When the sellers are in large numbers and are compared to a singular buyer who can then control prices, is called monopsony.

What Is The Coordinating Mechanism In A Market System?
Image by Gerd Altmann from Pixabay

4. Characteristics of the Market Economy

4.1. Private Ownership

The idea of private property lays the foundation of any market economy, as it provides the owners with the complete right to sell their goods and services.

They can also earn profit by selling or leasing their properties.

4.2. Freedom of Choice

Any business or individual is allowed to produce, sell and purchase goods and services with healthy competition.

What Is The Coordinating Mechanism In A Market System?
Image by Werner Heiber from Pixabay

They just need to keep one thing in mind, if they’re producing some goods or providing services they should be providing them at prices that are feasible for the consumers and they can happily pay those.

4.3. Self-Interest

The biggest guiding reason behind a market economy is the motive of self-interest. It provides individuals and businesses with an opportunity to do things their way.

They can earn the way they like, work how they want to, and carry out business operations in a manner that they fancy.

4.4. Efficient Market

All members of the market, the customers producers, sellers, and buyers have equal knowledge about supply and demand, and pricing.

There is a sense of equality and no misinformation.

What Is The Coordinating Mechanism In A Market System?
Image by Kevin Schneider from Pixabay

5. Advantages

In a market economy, any innovation in a product will be a reward to the producer as new products will fetch more buyers and help in a better price system.

Due to perpetual competition, there will be efficient production, competitive pricing, and good quality maintained.

When one business performs well there will be other individuals to invest in the same since it is a free market, this will lead to bigger and better companies.

What Is The Coordinating Mechanism In A Market System?
Photo by fauxels on Pexels

Consumers are happy to pay prices for high in demand products, they also enjoy reduced prices in reverse situations.

6. Disadvantages

Since there is no one in charge as such to balance the competition it can at times become unfair and also a disadvantage to the people who’re at the non – beneficial hand and this makes the market as a whole very ineffective.

The freedom of choice might lead to the creation of a gap in society, people with money and resources might use them only in their favor.

What Is The Coordinating Mechanism In A Market System?
Image by Markus Winkler from Pixabay

It might even leave lesser opportunities for less abled or less fortunate individuals, they might not be able to perform to their maximum potential as the economy is driven by self-interest and not the nation’s interest.

7. End Notes: What is the Coordinating Mechanism in a Market System?

The central coordinating mechanism in a market economy is the price mechanism and the price mechanism is a system where the economic decisions of pricing are dependent on the supply and demand that are in turn regulated by customers.

In this coordination problem, the firms that produce goods will set a price for the same, and if this price meets with the price that the customer is ready to pay for the same a transaction occurs.

This helps in the central planning of the economy which helps in deciding what quantities should be produced and sold at what prices.

TAGGED: Efficient Market, market economy, Monopolistic Competition
Share This Article
Facebook Twitter Email Copy Link Print
Avatar
By Anushree Khandelwal
Let’s explore life, as we glide along it. I’m an engineer in nanotechnology, and a business graduate. I started writing when I was in my under graduate course and it has since then been a very therapeutic activity. For Icy Whiz, I write about different domains on varied topics including, Science , Technology, Marketing and General Knowledge.
Leave a comment Leave a comment

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Science Mysteries

How Long can the Body Survive without a Brain?
How Long can the Body Survive without a Brain?
Science
Depositphotos 139755738 XL
The Phoenix Lights Chronicles: Decoding Arizona’s UFO Enigma!
Science
Depositphotos 295562910 L
The Science of Cosmic Rays: Unveiling the Secrets of High-Energy Space Particles
Science
IMG 5057
Milky Way Marvels: A Structural Exploration
Science

Fun Facts

Is There Life After Death?
Is There Life After Death?
Fun Facts
Can There be Knowledge That is Independent of Culture?
Can There be Knowledge That is Independent of Culture?
Fun Facts
young brunette girl shirts chilling chair sunny morning she holds legs smiling with closed eyes
Do Foot Fetish Models Actually Like Feet?
Fun Facts
Why Do We Seek Knowledge?
Why Do We Seek Knowledge?
Fun Facts
Icy Whiz

Know More About Us

  • About Us
  • Contact Us
  • Privacy Policy
  • Terms and Conditions

Quick Links

  • About Us
  • Business
  • Fun Facts
  • General Knowledge
  • Science
Facebook Like
Twitter Follow
Youtube Subscribe

© Icy Tales Network. All Rights Reserved.

Welcome Back!

Sign in to your account

Lost your password?