Editing Market economy (section)

== Characteristics ==
=== Property rights ===
For market economies to function efficiently, governments must establish clearly defined and enforceable [[property rights]] for assets and capital goods. However, property rights do not specifically mean private property rights and market economies do not logically presuppose the existence of [[Private property|private ownership]] of the [[means of production]]. Market economies can and often do include various types of [[cooperatives]] or autonomous [[state-owned enterprise]]s that acquire [[capital goods]] and raw materials in [[capital market]]s. These enterprises utilize a market-determined free price system to allocate capital goods and labor.<ref name="auburn.edu">{{cite web | url=http://www.auburn.edu/~johnspm/gloss/market_economy | title=A Glossary of Political Economy Terms, Market economy | author=Paul M. Johnson | year=2005 | publisher=Auburn University | access-date=28 December 2012 | archive-url=https://web.archive.org/web/20121227012016/http://www.auburn.edu/~johnspm/gloss/market_economy | archive-date=27 December 2012 | url-status=dead }}</ref> In addition, there are many variations of [[market socialism]] where the majority of capital assets are socially owned with markets allocating resources between socially owned firms. These models range from systems based on [[Worker cooperative|employee-owned enterprises]] based on [[Worker self-management|self-management]] to a combination of public ownership of the [[means of production]] with [[factor market]]s.<ref>{{cite book |last= Bock man|first= Johanna |title= Markets in the name of Socialism: The Left-Wing origins of Neoliberalism|publisher= Stanford University Press|year= 2011|isbn= 978-0804775663}}{{page needed|date=March 2022}}</ref>

=== Supply and demand ===
Supply and demand supposedly work in tandem. The economic theory is that supply slopes upwards as people buy more and demand drops as prices rise and people buy less.<ref name=":0">{{Cite web |title=Supply and Demand: Why Markets Tick |url=https://www.imf.org/en/Publications/fandd/issues/Series/Back-to-Basics/Supply-and-Demand#:~:text=Supply%20is%20generally%20considered%20to,higher%20prices,%20consumers%20buy%20less. |access-date=2024-09-22 |website=IMF |language=en}}</ref> 

Market economies rely upon a price system to signal market actors to adjust production and investment. Price formation relies on the interaction of supply and demand to reach or approximate an equilibrium where the unit price for a particular good or service is at a point where the quantity demanded equals the quantity supplied. 

The price data point where the supply and demand lines intersect is called the [[Market clearing|market-clearing price]].<ref name=":0" /> [[File:Market Economy Supply and Demand Graphic.jpg|alt=The image shows a graph of the supply and demand economic theory. Supply slopes up as people buy more. Demand drops as people buy more and prices rise. |thumb|Market Economy Supply and Demand]]
[[File:Rwanda fruits2.jpg|thumb|Rwanda fruits at the market]]

Governments can intervene by establishing [[price ceiling]]s or price floors in specific markets (such as [[minimum wage]] laws in the labor market), or use [[fiscal policy]] to discourage certain consumer behavior or to address market externalities generated by certain transactions ([[Pigovian tax]]es). Different perspectives exist on the role of government in both regulating and guiding market economies and in addressing social inequalities produced by markets. Fundamentally, a market economy requires that a price system affected by supply and demand exists as the primary mechanism for allocating resources irrespective of the level of regulation.