Answer to Question #156667 in Macroeconomics for EMMANUEL DOKYI

Question

Write a magazine article called ‘Understanding the micro-economic business environment’

Answer 1

The modern economy of all developed countries is of a market nature, this is due to the fact that the market economy has proved to be the most effective and flexible for solving basic economic problems. For a long time, humanity has lived in a subsistence economy. With the improvement of tools and technologies, people began to receive more products than necessary to meet their own living needs. Surplus products began to be exchanged for necessary goods. The beginnings of the market and market relations appear.

In the economic literature, you can find different definitions of the market. Thus, W. Jevons in the 19th century understood the market as a group of people entering into business relations and concluding deals on any product. F. Kotler characterizes the market as a set of existing and potential buyers of a product. The British Encyclopedia believes that the market is a set of tools through which goods and services are exchanged as a result of contacts between buyers and sellers.

F. Hayek defines the market as a complex transmission device that makes it possible to use the information of many individual agents with great efficiency.

You can define the market as a mechanism of interaction between buyers based on the operation of market laws and principles.

Market relations are relations that arise between buyers and sellers in the process of performing market transactions.

The emergence of the market is a natural historical process, since all the prerequisites were created for this, among them:

Division of labor,

Isolation of producers,

Conducting its activities independently of others,

· Freedom of enterprise.

The market economy does not require the setting of goals and objectives, the market entity solves its own selfish economic tasks, and ultimately acts in the interests of the whole society. In their actions, they are guided by the “invisible hand” (A. Smith) of the market, which brings these selfish goals together. The “invisible hand” is the operation of objective market laws.

The functioning of a market economy presupposes the presence of certain of its elements, without which its functions are inconceivable, which together constitute a market system:

· Producers and consumers;

· Economic isolation;

· Prices;

· supply and demand;

· Competition;

In addition, the market infrastructure is an integral part of the market economy: banks, stock exchanges, insurance companies. The mechanism of functioning of a market economy is based on three main principles:

· Analysis - when choosing options for behavior, entrepreneurs are guided by what will bring him, profit or loss, an additionally produced unit of product.

· Costs of an alternative choice - they appear as the sum of direct costs and lost benefits associated with a departure from other ways of using resources or activities.

· Economic rationality - this principle is based on the compilation of benefits and costs.

The essence of the market is most fully manifested in its functions, the most important of which include:

· The function of regulation of social production, which establishes supply and demand in the market - shows which goods and in what volume are needed by the consumer;

· Pricing function - prices for goods sold are set in the market as a result of the interaction of supply and demand (an equilibrium price is formed);

· Information function;

Information, being one of the types of resources, allows firms to find objective data in a huge amount of information about prices, demand, offers, interest rates, and much more, allowing them to build their business activities correctly and break even.

· Intermediary function;

· Sanitizing function;

By means of rehabilitation, the economy is cleared of weak unnecessary objects, while at the same time allowing the emergence of new enterprises.

The market is a complex system consisting of many separate parts, also called markets. There are the following groups of markets:

Market of goods and services (production and non-production goods and transport services)

Market for factors of production (labor market, materials market, energy resources market)

Financial market (capital market, securities, foreign exchange, domestic, national, international, global markets)