Market Mechanisms ? Here Are They
At the end of the 1980s, the most astonishing development happened with the collapse of the Soviet and the switch of Russia and the other constituent states to market-led economies. Earlier many countries in the west embarked on a journey which was marked by an unexpected resurgence of the capitalist system. Many countries in the other parts of the world followed and decreased the role of governments in providing goods and services.
It seems that a shift was happening from the needs of the business to the needs of the customers in this era. It was like rediscovering an old forgotten fact, but it was becoming commonplace to see businesses that does not follow this course will most likely be unsuccessful in the long run. Any business will most probably suffer the consequences of bankruptcy in the short run because it is the customer who decides whether to buy or not to buy.
For this reason, the essence of the marketing concept shifted from the shareholder concept to the stakeholder concept in which the central role of the customer, buyer or consumer was emphasized. In the economic systems of the of the 21st century, most businesses, including those in the public sector, use profit as the measure of their success. For those in the private sector, profit is truly essential for long-term survival. Profit only comes from sufficient revenue at a sufficient margin over costs. Ultimately, profit cannot be generated and sustained without the support from customers. It became obvious again that the whole future success and even continuation of the business depends on offering customers what they want at prices they will pay. This is one of the most important reasons why the marketing concept be so vital again to a business since the 1980s.
Soon the argument of 'profitability' also infiltrated the services in the public sector. It began to be recognized that public services cannot be sustained unless the investment in them produces worthwhile returns. Despite the difficulty in defining "returns" in the public sector. the profitability arguments in the public sector was soon firmly established. The public services institutions who came under heavy fire by unsatisfied citizens had to change their strategies imitating the institutions in the private sector. Consequently, privatization became an important instrument for the implementation of these new strategies. The quality of public services have improved considerably after the introduction of the new market-led forces in public services.
Market mechanism is a term from economics referring to the use of money exchanged by buyers and sellers with an open and understood system of value and time trade offs to produce the best distribution of goods and services. The use of the market mechanism does not imply a free market; there can be captive or controlled markets which seek to use supply and demand, or some other form of charging for scarcity, both in social situations and in engineering.
Market mechanisms [/b][/b]
Means by which the forces of demand and supply determine prices and quantities of goods and services offered for sale in a free market.
Economic efficiency and the market
In neoclassical economics the market has two distinct properties. The first, already discussed was the development of market equilibrium. Most mainstream economic models view the economy as sufficiently competitive, and as moving to equilibrium. This movement is seen as inevitable in the long haul, and as natural consequences of the economic forces of supply and demand. The movement to equilibrium is also seen as good because it is considered economically efficient. Although efficiency is not seen as the only criteria to judge the success of the economy, it does have in economics of special role and prominence. There is a belief among economists that economic theory can contribute to both an understanding of, and a promotion of economic efficiency.
There are other criteria for judging the success of an economy. The most prominent is equity or fairness. Fairness is seen as purely subjective. For economists, this criterion is seen as purely a judgment call, were economic theory has no role. Markets are not seen as particularly equitable or fair, they are just seen as objective phenomenon. And although fairness as criteria should be seen as potentially equal to efficiency, but because economists have little to add about fairness, fairness tends to be invisible in much of economic analysis.
The second, property of neoclassical economics is that markets are economically efficient. For economists, efficiency means that the economy is producing just the right quantity of goods and services to satisfy society’s wants at minimum cost. Economic efficiency is not the engineering or technical definition of efficiency. Economic efficiency does not try only to minimize inputs in a production process, or even minimize costs in a given operation, or maximize output given a level of input, but determine for the whole economy what quantity of goods and services are best , and minimize all opportunity costs for those goods and services.
Developing the full argument for economic efficiency in neoclassical economics requires a more complete development of demand and supply. These arguments are laid out more in the chapter on demand, and the chapter on perfect competition. But we can summarize the essence of those chapters on the meaning of demand and supply here. Given the assumptions of neoclassical economics on the theory of demand, the market demand curve is re-interpreted as the benefits to society in the consumption of goods and services. The demand curve represents the importance to society of these goods and services.
The other half of the efficiency equation comes from the supply curve. Here given the appropriate assumptions of perfect competition on the theory of supply, the market supply curve is re-interpreted as the cost to society for the consumption of goods and services. These are opportunity costs not necessarily only dollars. The supply curve represents the cost in production of goods and services.
At the end of the 1980s, the most astonishing development happened with the collapse of the Soviet and the switch of Russia and the other constituent states to market-led economies. Earlier many countries in the west embarked on a journey which was marked by an unexpected resurgence of the capitalist system. Many countries in the other parts of the world followed and decreased the role of governments in providing goods and services.
It seems that a shift was happening from the needs of the business to the needs of the customers in this era. It was like rediscovering an old forgotten fact, but it was becoming commonplace to see businesses that does not follow this course will most likely be unsuccessful in the long run. Any business will most probably suffer the consequences of bankruptcy in the short run because it is the customer who decides whether to buy or not to buy.
For this reason, the essence of the marketing concept shifted from the shareholder concept to the stakeholder concept in which the central role of the customer, buyer or consumer was emphasized. In the economic systems of the of the 21st century, most businesses, including those in the public sector, use profit as the measure of their success. For those in the private sector, profit is truly essential for long-term survival. Profit only comes from sufficient revenue at a sufficient margin over costs. Ultimately, profit cannot be generated and sustained without the support from customers. It became obvious again that the whole future success and even continuation of the business depends on offering customers what they want at prices they will pay. This is one of the most important reasons why the marketing concept be so vital again to a business since the 1980s.
Soon the argument of 'profitability' also infiltrated the services in the public sector. It began to be recognized that public services cannot be sustained unless the investment in them produces worthwhile returns. Despite the difficulty in defining "returns" in the public sector. the profitability arguments in the public sector was soon firmly established. The public services institutions who came under heavy fire by unsatisfied citizens had to change their strategies imitating the institutions in the private sector. Consequently, privatization became an important instrument for the implementation of these new strategies. The quality of public services have improved considerably after the introduction of the new market-led forces in public services.
Market mechanism is a term from economics referring to the use of money exchanged by buyers and sellers with an open and understood system of value and time trade offs to produce the best distribution of goods and services. The use of the market mechanism does not imply a free market; there can be captive or controlled markets which seek to use supply and demand, or some other form of charging for scarcity, both in social situations and in engineering.
Market mechanisms [/b][/b]
Means by which the forces of demand and supply determine prices and quantities of goods and services offered for sale in a free market.
Economic efficiency and the market
In neoclassical economics the market has two distinct properties. The first, already discussed was the development of market equilibrium. Most mainstream economic models view the economy as sufficiently competitive, and as moving to equilibrium. This movement is seen as inevitable in the long haul, and as natural consequences of the economic forces of supply and demand. The movement to equilibrium is also seen as good because it is considered economically efficient. Although efficiency is not seen as the only criteria to judge the success of the economy, it does have in economics of special role and prominence. There is a belief among economists that economic theory can contribute to both an understanding of, and a promotion of economic efficiency.
There are other criteria for judging the success of an economy. The most prominent is equity or fairness. Fairness is seen as purely subjective. For economists, this criterion is seen as purely a judgment call, were economic theory has no role. Markets are not seen as particularly equitable or fair, they are just seen as objective phenomenon. And although fairness as criteria should be seen as potentially equal to efficiency, but because economists have little to add about fairness, fairness tends to be invisible in much of economic analysis.
The second, property of neoclassical economics is that markets are economically efficient. For economists, efficiency means that the economy is producing just the right quantity of goods and services to satisfy society’s wants at minimum cost. Economic efficiency is not the engineering or technical definition of efficiency. Economic efficiency does not try only to minimize inputs in a production process, or even minimize costs in a given operation, or maximize output given a level of input, but determine for the whole economy what quantity of goods and services are best , and minimize all opportunity costs for those goods and services.
Developing the full argument for economic efficiency in neoclassical economics requires a more complete development of demand and supply. These arguments are laid out more in the chapter on demand, and the chapter on perfect competition. But we can summarize the essence of those chapters on the meaning of demand and supply here. Given the assumptions of neoclassical economics on the theory of demand, the market demand curve is re-interpreted as the benefits to society in the consumption of goods and services. The demand curve represents the importance to society of these goods and services.
The other half of the efficiency equation comes from the supply curve. Here given the appropriate assumptions of perfect competition on the theory of supply, the market supply curve is re-interpreted as the cost to society for the consumption of goods and services. These are opportunity costs not necessarily only dollars. The supply curve represents the cost in production of goods and services.