Why the market is considered a self-regulating mechanism in 2018

Self-regulation mechanisms

The main condition for self-regulation of the market is the presence of free competition, which ensures the desire of manufacturers to produce higher quality goods at a more affordable price. The competition mechanism forces out unprofessional and inefficient production from the market. This need determines the development of innovations in production and the most efficient use of economic resources. This feature of the market ensures the development of scientific and technological progress and improvement of living standards.
The market as a self-regulating mechanism is a process of optimal allocation of resources, location of production, a combination of goods and services, exchange of goods. This process is aimed at striving to balance the market balance between supply and demand.Depending on the general economic and local factors, market demand is formed, which changes under the influence of scientific progress, the effect of "saturation", changes in tastes. Flexible pricing policy of a competitive market allows manufacturers to constantly adapt to changing conditions of demand, seeking to bring to the market the most popular offer.
There are two scientific approaches to explaining market self-regulation. These approaches are reflected in the Walras and Marshall models. The Leon Walras model explains the presence of market equilibrium by the market's ability to quantify the “substitutions” of supply and demand. For example, in the case of low demand for goods, manufacturers reduce prices, after which the demand for goods will increase again - and so on until the quantitative balance of supply and demand equals. The presence of excess demand will allow producers to raise prices, which will reduce demand - and so on again to achieve a balance between supply and demand.
The Alfred Marshall model makes the basis of market equilibrium the effect of price on supply and demand.So, if an overpriced price is established for a product, the demand for it falls, after which the producer lowers the price, and the demand for the product increases - and so on until the price of the product becomes maximally determined. Such an optimal price is called equilibrium.

The concept of the "invisible hand of the market"

The founder of modern economic theory, Adam Smith, called the market self-regulation process an “invisible hand” of the market. According to Smith’s theory, every person in a market environment strives for his own benefit, but striving to meet his needs ensures the maximum positive economic effect for the whole society and the market as a whole. The automatic impact of the “invisible hand of the market” ensures the availability in the market of the necessary quantity of goods and services for consumers of the quality and range they need. The effect of the “invisible hand” is explained by the interaction of supply and demand and the achievement of market equilibrium.

Date: 09.10.2018, 12:42 / Views: 75334

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