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June 23, 2017 

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SAY'S LAW: A classical economic proposition stating that the production of aggregate output creates sufficient aggregate demand to purchase all of the output produced. In other words, supply creates its own demand. This is one of the three assumptions underlying the macroeconomic theory of classical economics which concluded that unrestricted market activity would generate full employment. The other two assumptions are flexible prices and saving-investment equality. Say's law is closely associated with the circular flow model.

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MARKET-ORIENTED ECONOMY:

A mixed economy that relies heavily on markets to answer the three questions of allocation, but with a modest amount of government involvement. While it is commonly termed capitalism, the term market-oriented economy is much more descriptive of the structure of the economy. The United States is the primary example of a market-oriented economy.
A market-oriented economy takes to heart the fifth rule of imperfection. Such an economy relies predominately on the efficiency of competitive markets to allocate resources, but governments enter the fray with economic policies to address market failures, business cycles, and other problems that might arise. The United States, for example, answers about two-thirds to three-fourths of the economy's resource allocation questions with markets. The remaining one-fourth to one-third are answered by governments.

The key institutions that form the foundation of a market-oriented economy are:

  1. Private Property: Private individuals, rather than governments, are the primary owners of resources, goods, and other assets.

  2. Individual Freedom: Those who own resources, goods, and other assets have the freedom to use their property as they see fit.

  3. Competitive Markets: Market are used to exchange privately owned commodities and to answer the three questions of allocation.

These three institutions create an economic environment that provides the incentives to achieve efficiency. In a market-oriented economy, buyers and sellers have the freedom to direct their resources through competitive markets to the highest valued uses.

A market-oriented economy, however, is definitely a mixed economy. While most allocation decisions are made voluntarily through market exchanges, governments also impose choices on the economy through regulations, taxes, and spending.

Two key functions that governments provide in a market-oriented economy are:

  1. Legal System: Governments operate the legal system to establish the "rules of the game" and maintain order throughout society. Without such order individuals are discouraged from undertaking voluntary market exchanges.

  2. Public Goods: Governments provide public goods, like national defense and education, that cannot be efficiently provided through voluntary market exchanges. These goods are provided directly through taxes and spending or indirectly through regulatory oversight.

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Recommended Citation:

MARKET-ORIENTED ECONOMY, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2017. [Accessed: June 23, 2017].


Check Out These Related Terms...

     | capitalism | free enterprise | laissez faire | socialism | communism | market socialism |


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     | economic system | mixed economy | economy | private sector | public sector | paternalism | fifth rule of imperfection | institution |


And For Further Study...

     | economic goals | political views | distribution standards | three questions of allocation | government functions | second economic rules | production possibilities | circular flow | business cycles | gross domestic product | unemployment | inflation |


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