A market economy is an economy in which decisions regarding investment, production and distribution are based on supply and demand, and the prices of goods and services are determined by a free price system. The main defining characteristic of a market economy is that decisions on investment and the allocation of capital goods are primarily made through markets. This contrasts with a planned economy, where investment and production decisions are implemented in a production plan.

Market economies can range from hypothetical laissez faire and free market variants to regulated markets and interventionist variants. In fact, one or another model of a market economy does not exist in its pure form, since society and government regulate the economy to varying degrees. Most existing market economies include some elements of economic planning or government intervention, and are thus classified as mixed economies. The term free market economics is sometimes used interchangeably with market economics, but it can also refer to a laissez-faire or free market anarchy model.

A market economy does not logically presuppose the existence of private ownership of the means of production; a market economy may consist of various types of cooperatives, collectives, or autonomous government agencies that purchase and exchange capital goods with each other in a free price system. There are many variants of market socialism, some of which include self-managed (employee-owned) enterprises; as well as models that include public ownership of the means of production, where the means of production are allocated through markets.

The term market economy used by itself can be somewhat misleading. For example, the United States is a mixed economy (large proportion of regulated markets, subsidized agriculture, large amounts of government funding for research and development, government support for medicine), but at the same time it is based on the conditions of a market economy. There are different perspectives on how strong the role of government should be, both in relation to the market economy and in addressing the problems of inequality that the market brings.

Capitalism

Capitalism generally refers to an economic system where the means of production are largely or entirely privately owned and operated for profit, and is built on the process of capital accumulation. In general, investments, distribution, income and prices are determined by markets.

There are different variations of capitalism with different relationships to markets. In laissez faire and free market capitalism, markets are used most widely with little or no government intervention or regulation over the prices and supply of goods and services. In interventionist capitalism, welfare capitalism and mixed economies, markets continue to play a dominant role, but are regulated to some extent by government in order to correct market failures or promote social welfare. In state capitalist systems, markets are heavily regulated by the state, rely on any indirect economic planning, and/or use state-owned enterprises to accumulate capital.

Capitalism has been dominant in the Western world since the end of feudalism, but most economists believe that the modern economy is more accurately described by the term "mixed economy", due to the fact that it contains both private and state-owned enterprises. Under capitalism, prices determine the scale of supply and demand. For example, increased demand for certain goods and services leads to higher prices, and decreased demand for certain goods leads to lower prices.

Anglo-Saxon model of market economy

Anglo-Saxon capitalism refers to the form of capitalism prevalent in English-speaking countries and is characteristic of the US economy. It contrasts with European models of capitalism such as the continental social market model and the Scandinavian model.

Anglo-Saxon capitalism refers to the macroeconomic political regime and capital market structure common to all English-speaking countries. Its main characteristics are low tax rates, more open financial markets, low labor market protection, and a less socially responsible state that eschews the collective bargaining schemes found in continental and northern European models of capitalism.

East Asian model of market economy

The East Asian model of capitalism is based on a strong role for public investment and, in some cases, state-owned enterprises. The government is actively involved in promoting economic development through subsidies, promotion of “national champions” and an export-oriented model of economic growth.

Non-interference

Laissez-faire is synonymous with what was called strictly capitalist free market economics in the early to mid-19th century, which classical liberalism (right-wing liberalism) is ideally suited to achieve. It is generally understood that the necessary components for the operation of an idealized free market system include a complete absence of government regulation, subsidies, artificial price pressures, government-granted monopolies (usually classified as coercive monopolies by free market advocates), and no taxes or tariffs other than those necessary for governments to provide protection from crime, maintain peace and property rights, and provide basic public goods.

Right-wing liberal supporters of anarcho-capitalism consider the state to be morally illegitimate and economically unnecessary and destructive.

Social market economy

This model was implemented by Alfred Müller-Armack and Ludwig Erhard after World War II in West Germany. The social market economic model is based on the idea of ​​realizing the benefits of a free market economy, especially economic efficiency and high volumes of goods supplied, while avoiding the disadvantages such as market failure, destructive competition, concentration of economic power and the anti-social consequences of market processes. The goal of the social market economy is to realize the highest prosperity combined with the best social security.

One of the differences from a free market economy is that the government is not passive, but takes active regulatory measures. Social policy objectives include employment, housing and education policies, as well as socio-politically motivated balancing of the distribution of income growth. The characteristics of a social market economy are strong competition policies and contractionary monetary policies. The philosophical basis for constructing such a model was neoliberalism or ordoliberalism.

Market socialism

Market socialism refers to various types of economic systems where the means of production and dominant economic institutions are either publicly owned or jointly owned by private and public entities, but operate according to the rules of supply and demand. This type of market economy has its roots in classical economics in the works of Adam Smith, Ricardo and other socialists and philosophers.

The distinguishing feature between non-market socialism and market socialism is the existence of a market for factors of production and profitability criteria for enterprises. Profits generated from state-owned enterprises can be variously used to reinvest in further production, directly fund government and social services, or be distributed to the general public through social dividends or the basic income system.

State ownership models

In Oskar Lange and Abb Lerner's models of market socialism, Lange's theorem states that a government body (called the Central Planning Board) can set prices on a trial-and-error basis until they equal the marginal cost of production so as to achieve perfect competition and Pareto optimality. In this model of socialism, firms are publicly owned and managed by their employees, and profits are distributed to the population in the form of social dividends.

A more modern model of market socialism, proposed by the American economist John Roemer, is called economic democracy. In this model, socialization is achieved through public ownership of capital in a market economy. The model assumes that the public property bureau will own controlling stakes in public companies, and the resulting profits will be used for government funding and basic income.

Cooperative socialism

Libertarian socialists and left-wing anarchists often propose a form of market socialism in which businesses are owned and operated jointly by their employees, so that profits directly pay the employee-owners. These joint ventures will compete with each other in the same way that private companies compete in a capitalist market. An example of such an economic model would be mutualism.

Self-governed market socialism was introduced in Yugoslavia by economists Branko Horvat and Jaroslav Vanek. In the self-managing model of socialism, firms are directly owned by their employees and the board is elected from the employees. These cooperative firms compete with each other in the market, both in terms of capital goods and sales of consumer goods.

Socialist market economy

Following reforms in 1978, the People's Republic of China declared a "socialist market economy" in which most of the economy is state-owned, but state-owned enterprises are reorganized into joint stock companies and various government agencies hold controlling stakes through a shareholder system. Prices are set largely through a free-price system, and state-owned enterprises are not subject to the micromanaging scrutiny of the government planning agency. A similar “socialist-oriented market economy” system was implemented in Vietnam as a result of reforms in 1986.

However, this system is usually characterized as state capitalism rather than market socialism because it does not have a significant role for employee self-government in firms, and state-owned enterprises retain their profits rather than distributing them to employees or transferring them to the government, and are largely run in disarray. in fact, as private enterprises. The profits finance the benefits of the population as a whole, but do not go to their employees.

Topic 2. Market economy

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The most important terms and concepts.

2.1. Various economic systems

The first step in learning any science is difficult. But you did it. You've got an idea of ​​what economics studies. In particular, one of the definitions of the subject of economic theory stated that economic theory studies the general patterns of behavior of people and the economic system as a whole in the process of production, exchange, distribution and consumption of goods under conditions of limited resources. The most common and considered to be the most effective modern economic system is the market economic system. Most of this textbook will be devoted to getting to know this economic system (12 topics out of 16), i.e. topics 2 - 13. This topic will give a general description of the market economy as an economic system as a whole. But before moving on to a direct analysis of a market economy, let's consider the general classification of modern economic systems.
In the previous topic, when defining what an economic system is, we identified four areas of human activity in the economic system: production, exchange, distribution and consumption of goods (see Fig. 1.1). At this stage of our acquaintance with economic systems, it is necessary to consider the economy in more detail from other positions, to highlight other parts (structures) of any economy (see Fig. 2.1). These structures, existing in any economic system, include the material and technical structure of the economy, socio-economic structure, organizational and economic structure (economic mechanism).

Rice. 2.1
Material and technical structure The economy includes, first of all, the material resources of society, its natural resources, objects of labor, means of labor, existing enterprises, and production infrastructure. The latter includes the general conditions for the functioning of production, for example, roads, airports, power lines, pipelines (see Fig. 2.2). The material and technical structure of the economy is characterized by a certain level of development of equipment and technology. Social productivity of labor, the volume of goods produced in society, the degree of development of social relations, the development of culture, education, science, and public morality largely depend on the level of development of the material and technical structure of the economy.

Fig.2.2
Socio-economic structure- this is, first of all, the total labor force of society, people with their physical and mental abilities, level of education and qualifications, their life and work experience. The most important part of the socio-economic structure is the relationship of ownership of the means of production. The dominant type of property determines the specifics of the economic system. For example, if a society is dominated by private ownership of the means of production, then such a system will be called capitalism. Under socialism, the dominant form of ownership is state ownership of the means of production. In addition to the dominant form of ownership, other forms of ownership can coexist in an economic system; in particular, under capitalism there are both state ownership and collective ownership of the means of production. The socio-economic structure also includes legal institutions and various legislation that determines the rules of economic activity. For example, property laws, labor laws, banking laws, consumer protection laws, etc. Finally, this also includes the so-called social infrastructure, that is, the education system, public health care, and social insurance (see Fig. 2.3).

Rice. 2.3
Organizational and economic structure(economic mechanism) is a set of methods, tools, forms of organizing connections between producers and consumers, between various subjects of the economic system, it is a mechanism for distributing limited resources of society (see Fig. 2.4). In other words, it is a mechanism for coordinating economic activities. These relationships between economic entities can be carried out, for example, through the market, where prices indicate what to produce and in what volumes, or through a system of centralized economic planning, when producers are tasked with producing a certain volume of products and the necessary resources for this. In modern economic systems, the organizational and economic structure is a combination of the market mechanism and the mechanism of state regulation of the economy.

Rice. 2.4
Thus, any economic system is a set of complex structures interacting with each other. The economic system can be considered, on the one hand, as a national economy with its branches of industry and agriculture, trade, services and the corresponding economic mechanism, and, on the other hand, as a set of socio-economic relations between people, depending on the relations of ownership of factors production.
Any economic system solves at least three fundamental problems of society: what to produce, how to produce, for whom to produce. What to produce? It's about what products will best satisfy society's many needs and how many of them need to be produced. This is the eternal dilemma of bread and circuses, guns and butter. Suppose society decides to produce houses. How many of them need to be built? How many rooms should there be in a house? Should these houses be aimed at people with low incomes or high incomes? Tens and hundreds of similar questions arise before society. It is impossible to have everything we want with the limited resources available, so we need to decide what to produce and in what proportions.

Rice. 1.4
How to produce? In other words, what resources and what technology should be used in the production of this or that product? Many types of products can be produced using both simple technology, which requires a lot of manual labor, and using advanced modern technology, which does not require much labor. (In the first case, we are talking about labor-intensive technology, and in the second case, about capital-intensive technology.) It is likely that in developed countries, such as the United States and Western Europe, where there is an abundance of capital and labor is expensive, more is used capital intensive technology. In less developed countries, for example, China and India, it is used to a greater extent labor-intensive technology. In the production of a certain product, different raw materials in different proportions, different types and quantities of equipment may also be used. The problem of how to produce is complex, but every society strives to find a reasonable and effective solution, based on available capabilities and established priorities.
For whom to produce? That is, how should the products produced be distributed among members of society? If society has built houses, who should receive them? The workers who built them, or the teachers who teach the children of these workers, or the military personnel who gave their lives to defend the Fatherland? To whom and according to what principle should a limited amount of goods be distributed with unlimited needs? Of all the problems solved by the economic system, this problem is the most acute and often discussed in society. Some prefer equal distribution, in which everyone receives, albeit little, but equally, regardless of their labor contribution. Others believe that remuneration should correspond to the contribution to production, depend on the experience and qualifications of a member of society, on how hard a person works. Still others argue that if a person gives his capital to society for use, then this person should also receive a reward. Despite all the differences in views on the principles of distribution, most people are inclined to believe that there must be incentives for economic activity that make the economic system dynamic and efficient.
History knows many economic systems that solved the fundamental problems of society in different ways. These systems differed significantly in their structure, and in the level of material and technical base, and in the forms of ownership of the means of production and consumer goods, and in the method of coordinating connections between producers and consumers, that is, in their economic mechanism.
Economic systems can be classified in different ways. The classification of economic systems depends on the choice of the defining criterion. As such a criterion, one can use differences in one or another structure that characterizes the economic system. These may be differences in material and technical, socio-economic or organizational structures. In particular, if we take the level of development of the material and technical base as a criterion for classifying economic systems, then historically we can distinguish pre-industrial, industrial, and post-industrial economies (see Fig. 2.5). The modern post-industrial economy of developed countries is characterized as an information economy.

Rice. 2.5
Economic systems also differ depending on the type of socio-economic structure. The main characteristic of this structure in the economic system is the dominant form of ownership of the means of production. Depending on this, economic systems such as primitive communism, slavery, feudalism, capitalism, and socialism are distinguished in history (see Fig. 2.6). In these economic systems, the dominant form of ownership is, respectively, collective, private slave, private feudal, private capitalist, public.

Rice. 2.6
Modern economic systems are considered mainly from the standpoint of the characteristics of the organizational and economic structure of the economy, that is, from the standpoint of its economic mechanism. From this point of view, we can distinguish traditional, market, mixed, centrally planned and transition economies (see Fig. 2.7).
Traditional economics is an economic system in which the main economic problems of society - what, how and for whom to produce - are solved mainly on the basis of traditional patriarchal, tribal, semi-feudal hierarchical ties between people. At its core, the traditional economy is a set of subsistence farms in which the bulk of products are produced for own consumption and not for sale. The most important economic units of the traditional economy are small family farms within the rural community and larger farms of the tribal aristocracy. Within the traditional economy there is a natural and rudimentary social division of labor, primitive traditional technology for cultivating land, raising livestock, and crafts.
The volumes and structure of needs and production in a traditional economy are determined by traditions, habits, beliefs, family relationships, hierarchical relationships within the clan and community and change little over time. These traditions, passed on from generation to generation, determine both the labor motivation of producers and the mechanism for distributing the products of labor. Along with equal distribution taking into account gender and age, there are elements of unequal distribution depending on the place occupied in the social hierarchy and depending on the results of labor.
In the socio-economic structure of the traditional economy, one can distinguish collective (community) ownership of the means of production, private family property, and semi-feudal property of the tribal aristocracy. TO communal property, as a rule, include arable land, pastures, reservoirs, forests. In the modern world, traditional economics plays a significant role only in the developing countries of Tropical Africa, South and Southeast Asia. The existence of a traditional economy next to a rapidly developing market economy leads to its degeneration and transformation into a market economy.

Rice. 2.7
Market economy- this is an economic system in which the main economic problems of society are solved, first of all, through a competitive price formation mechanism. (The general characteristics of a market economy will be discussed in more detail in the next section of this topic.)
Mixed economy is considered as a type of market economy, as an economic system in which, along with the developed private sector, the public sector of the economy also operates. In most developed Western countries, state-owned enterprises operate and a mechanism for state regulation of the economy is developed. Therefore, the economic system of these countries is called a mixed economy.
The fundamental problems of society - what, how and for whom to produce - are solved in a mixed economy through the interaction of the market mechanism and state regulation of the economy. The degree of development of state entrepreneurship and state regulation of the economy varies significantly in countries with developed market economies. In particular, if Japan is characterized by centralized indicative planning of the economy with elements of directiveness in the plans for the country's socio-economic development, then in the USA there is no such planning, but the mechanism of macroeconomic regulation operates effectively, i.e. mechanism of fiscal and monetary policy. At the turn of the 20th and 21st centuries. There are trends in the development of different economic systems towards a mixed economy.
Centrally planned, or administrative command, economics- an economic system in which the main economic problems of society are solved mainly through the mechanism of directive centralized economic management. Centrally planned economies existed for a long time in the former socialist countries of Eastern Europe, the USSR, China, and Vietnam. Currently, this system is maintained in Cuba and the Democratic People's Republic of Korea (DPRK). In the late 80s - early 90s. In the twentieth century, most of these countries began radical economic reforms aimed at transforming centrally planned economies into market economies. But in the transition economies of some of these countries, the administrative-command economic mechanism occupies a significant place.
A feature of the socio-economic structure of centrally planned economies is the dominance of state ownership of the means of production and the public sector in the production and distribution of the product. Cooperative ownership, widespread in this economy, was essentially a type of state ownership. Private property and private enterprises existed only in some countries and did not have a significant impact on economic development.
The monopoly of the state also determined the specifics of the organizational and economic mechanism of this economic system: directive centralized allocation of resources and distribution of products and income, on the one hand, and an undeveloped market mechanism, on the other hand. Through a system of mandatory planning targets for enterprises, government bodies determined the volumes and structure of production and the growth of labor productivity. This also implied a centralized provision of resources to enterprises, including the wage fund. Prices were also set by the state, which led to arbitrariness in pricing and the formation of distorted prices that did not reflect the cost of products and their usefulness. Production planning was carried out based on the achieved level and actually stimulated the costly nature of production, when the main thing was not an increase in production efficiency, but an increase in its volumes.
A centrally planned economy is a predominantly extensive type of economic development, when economic growth is achieved mainly through the involvement of additional resources in production, and not through more efficient use of existing resources (in the latter case, there is an intensive type of economic development). This is due not only to the rigid cost mechanism of directive planning and pricing, but also to the system of incentives for producers. In this economic system, the prevailing tendency is towards equal distribution of income, which does not stimulate the growth of worker productivity.
The dominance of state ownership and centralized planning led to a general alienation of producers from decision-making, from disposing of the products of their labor, and gave rise to their passivity and dependency. Therefore, in the administrative-command economy, non-economic methods of forced labor also operated. The use of these methods is possible only in the absence of political democracy. It is therefore no coincidence that the political system of countries with centrally planned economies is characterized by a one-party system.
Historically, an administrative-command economy was formed in countries where a system of political democracy had not developed, there was sharp social stratification, and there were strong contradictions in the socio-political and economic spheres. The social cataclysms generated by these contradictions led to the establishment of authoritarian regimes and centralized mechanisms for resolving these contradictions. The centrally planned economy was one of the historical ways to create an industrial society and solve the problem of poverty and social inequality. The historical costs of this path have been enormous. At the end of the twentieth century, this economic system, due to its extensive and coercive nature, turned out to be unable to adapt to the new conditions of the modern scientific and technological revolution, which led to a crisis of this system. This crisis and the spread of political democracy in centrally planned economies marked the beginning of their transformation into a market economy. Currently, they have a specific economic system called the transition economy.
Transition economy is a modern economic system that exists in countries where the transformation of a centrally planned economy into a market economy is underway. This group of countries includes the former socialist countries of Eastern Europe, states that were formerly part of the USSR, as well as China, Mongolia, and Vietnam. From the point of view of the economic mechanism, in a transition economy there are still elements of centralized economic management, especially in relation to public sector enterprises. However, this mechanism was largely destroyed in the 90s. XX century
At the same time, market economic structures have emerged and are developing in a transition economy, and a mechanism for distributing society's resources through the market is developing, where the relationship between supply and demand and market prices indicate how best to use resources. The central place in the process of forming a new economic mechanism belongs to denationalization and privatization, market pricing, new macroeconomic policy, and indicative central planning. Thus, the main economic problems of society - what, how and for whom to produce - in a transition economy are solved as a result of the complex interaction of obsolete directive methods of centralized management of the national economy and the developing market mechanism for the distribution and use of resources.
In terms of its socio-economic structure, a transition economy is a combination of private, state, mixed and collective forms of ownership. In most transition countries, the public sector is no longer dominant. For example, if in the early 90s. XX century In Russia, public sector enterprises produced more than 90% of all products, then at the beginning of the first decade of the 21st century. The public sector in Russia accounts for less than 40% of production. Most goods and services are produced by the private sector of the economy. As a result of the reforms, the legal and economic status of state-owned enterprises is changing. This occurs in the process of commercialization of their activities, expanding the degree of participation of workers in the capital of the enterprise. Most state enterprises were privatized. Based on privatization, the private sector of the economy developed rapidly. This sector includes both small private enterprises and large financial and industrial groups.
In terms of their material and technical structure, countries with economies in transition are industrial countries. But the previously formed industrial structure of the economy was predominantly extensive, reproducing old industrial technology, and little receptive to innovation. Therefore, one of the most important tasks of a transition economy is the formation of a new structure of the national economy, allowing the transition from old industrial technology to new information technology, and the transition to predominantly intensive reproduction. In other words, transition economy- This is also the transition from an industrial economy to a post-industrial information economy.
The transitional state of the economic system is characteristic not only of countries where a centrally planned economy previously existed. In the modern world, transition processes are taking place in many developing countries. But the specificity of the latter lies mainly in the transition from a traditional to a market economy. This kind of evolution has been known in the world for several centuries. The transition from an administrative command economy to a market economy is a new historical phenomenon at the end of the twentieth century. Therefore, the economic systems of former socialist countries are transitional economies of a new type, and the economic systems of developing countries are transitional economies of a traditional type.
The transition from an administrative-command economy to a market economy historically began relatively recently; its specific forms and directions are still largely unclear and uncertain. It is clear, however, that this historical transition will take a long time, that it is distinguished by the depth of economic transformations, their intensity and inconsistency. All this is also due to the fact that the transition economy is developing in the context of major civilizational shifts. In countries with transition economies, there is a transformation of a totalitarian society into a civil society, a totalitarian state into a democratic state, a unitary state into a federal state, a transformation of public morality and social psychology, worldview and way of life. Changes of this type and this scale can only happen in a few decades and will require the lives of several generations of Russians.

2.2. General characteristics of a market economy

The market economy is the most widespread economic system in the world at the turn of the 20th and 21st centuries. and the most effective from the point of view of long-term economic development. Both countries with a new type of transition economy and traditional transition economies in developing countries are developing towards a market economy. Therefore, it is no coincidence that economics textbooks focus on analyzing the features and patterns of a market economic system.
To understand the details of the functioning of a market economy, it is necessary to understand the main feature of this system. Market economy- this is an economic system in which fundamental economic problems - what, how and for whom to produce - are solved mainly through the market, at the center of which is a competitive mechanism for setting prices for products and factors of production. Prices are formed as a result of the interaction of demand for products and supply of products. It is the prices on the market that indicate what to produce and what resources to use.
The concept of market is the initial concept in the theory of market economics. A market is a system of relationships between sellers and buyers through which they come into contact regarding the purchase and sale of goods or resources. These contacts between sellers and buyers presuppose some kind of agreement between them, in accordance with which an exchange is carried out at a set price. During an exchange, there is a voluntary alienation of one’s property and the appropriation of someone else’s property, that is, a mutual transfer of property rights.
In the market, during the exchange, there is a public assessment of the goods produced. If a manufacturer sells his product, then his labor and other costs are recognized by society as meeting the needs of society. It is on the market that producers come into contact with each other, the market unites them, establishes connections between them. In the broad sense of the word market- is a social mechanism that communicates between producers, between producers and consumers of goods and resources.
Various economic agents, or market subjects, can act as producers and consumers in the market. Economic agents- these are participants in market economic relations who have ownership of factors of production and make economic decisions. The main economic agents are households, enterprises (firms), and the state. The position of each economic agent depends on its ownership of resources. For example, if an economic agent has only its own labor force, then its ability to influence the organization of production and income distribution is insignificant. If a market participant owns both his labor force and money capital, then he has much more opportunities to organize and manage an enterprise and distribute income.
Households as economic agents make decisions mainly on the consumption of goods necessary to support the livelihoods of family members. Both a family and an individual can act as a household if he lives separately and runs his own household. Ultimately, all economic resources belong to households, but they are distributed extremely unevenly among them. The vast majority of households own and control labor. In a market economy, labor is the main commodity created within the household and offered on the factor market. Receiving income from the sale of their resources, households make decisions about the distribution of limited income to purchase various consumer goods. The main economic interest of households is to maximize the utility of purchased goods. The choice of consumer goods by households shapes demand in a market economy.
An enterprise, or firm, is an economic agent that makes decisions about the production of goods for sale using resources purchased on the market. Produced goods are both material goods and services, therefore, when we talk about an enterprise, we mean purely production enterprises, and trading, financial, and service enterprises. In the long historical process of the emergence and development of a market economy, the production of goods was separated from households and began to be carried out in enterprises. The main economic interest of a business is to maximize profits. Other economic motives for the activities of enterprises can be maximizing sales, increasing market share, maintaining monopoly positions in the market, stable economic growth, increasing the market value of the enterprise. The decisions of enterprises about the volume and structure of production shape the supply on the market.
The state as an economic agent, or rather the government, makes decisions on the redistribution of goods produced in the private sector and on the production of so-called public goods. The latter include goods consumed jointly, such as mail, public safety, education, public health. The state can redistribute produced goods, for example, to help the disabled and the unemployed. The economic interests of the state reflect the interests of society as a whole. The most important of them are maintaining economic growth to meet the growing needs of society, increasing the efficiency of the national economy and its competitiveness in the world market.
Economic agents operate in different conditions, in different markets, differing in their location and breadth of coverage, in the object of purchase and sale, in how prices are set there, etc. Accordingly, we can highlight the following main forms of markets: in terms of coverage, these are local, national and international markets; depending on the object of purchase and sale, these are markets for goods and services and markets for resources (market for labor, capital, land, entrepreneurial abilities); according to the method of setting prices, these are markets with predetermined prices and markets where prices are set during the buying and selling process; according to the form of organization, these are markets that require personal contact or do not require contact (see Fig. 2.8).

Rice. 2.8
As already noted, in a market economy prices provide information about what to produce and in what way. With their help, social needs are identified and society's limited resources are directed to where these resources can be best used. If you try to imagine a market economic mechanism in the most general form, that is, how a market economy solves the fundamental economic problems of society, it will look like this.
What to produce? We are talking about which products will best satisfy the numerous needs of society and how many of them need to be produced. The needs of society are expressed in the demand for a particular product, and the scale of demand is determined by how much people can pay for various goods. Those products will be purchased whose price and quality satisfy consumers. On the other hand, the volume of goods produced and their range are expressed in the supply of goods. Manufacturers will produce those goods whose price reimburses them for production costs and makes a profit. Prices for goods are formed through the interaction of supply and demand. Consumer demand plays a critical role in determining what and how much to produce. Consumers "vote with their rubles." If enough votes are cast in favor of a given product to ensure a profit for enterprises, then they will produce it. When consumer demand increases, profits increase, which serves as a signal to expand production. Conversely, if consumer demand decreases, then profits decrease and production begins to decline.
How to produce? In other words, what resources and what technology should be used in the production of this or that product? In a market economy, production is carried out by those enterprises that use the most effective, that is, the most profitable, technology. Efficient technology involves choosing resources whose prices are relatively low. If there is a lack of capital in a country to buy expensive equipment, but at the same time there is cheap labor, then labor-intensive technology is chosen. Thus, the prices of resources, in this case the cost of equipment and the level of wages, provide the basis for solving the problem of how to produce.
For whom to produce? That is, how should the products produced be distributed among members of society? In principle, products are distributed among consumers according to the consumers' ability to pay the market price for them. These opportunities, in turn, are determined by consumer income. And cash income depends on the quantity and quality of resources (the quantity and quality of labor, capital, land, entrepreneurial talent) that households supply to the resource market. In exchange for the inputs supplied, households receive income. The amount of income directly depends on the prices of resources. This means that resource prices ultimately determine both income and the amount of output that the consumer receives when distributing the social product produced. What a consumer will buy depends on the prices of goods and services, in other words, the price of a product plays a key role in determining the range of goods and services that the consumer will receive.
Thus, the role of price in the market economic mechanism is very significant, prices (1) identify social needs, (2) signal what to produce and in what quantities, (3) convey information about which technology is most effective, (4 ) determine the mechanism for distribution of the social product, (5) influence the scale and structure of human consumption.
To better understand how a market economy works, let's imagine it in the form of a simple model, a model of economic circulation (see Fig. 2.9). The main simplification will be that we will consider the interaction of only two main economic agents of a market economy - households and enterprises (firms), temporarily excluding the state as an economic agent (excluding government expenditures and income). Let us also assume that the economy is closed, that is, there is no foreign trade. We will group all markets into two blocks: the market for goods and services and the market for production factors. Let us highlight two main economic flows in the circulation: the flow of factors of production and produced goods in material, physical form or in the form of services (external circulation), the flow of income and expenses in monetary form, that is, the financial flow (internal circulation).

Rice. 2.9
In the economy, exchange occurs between households and enterprises (firms). Households own resources and provide them to firms through resource markets. Firms use resources, produce products, and supply them to markets for goods and services. The interaction between households and businesses determines the overall output of the economy. There are a great many households and firms in the economy. For example, in the USA the number of households is approximately 96 million, the number of firms is more than 20 million. In the Russian economy in 2000, there were about 40 million households and about 3 million enterprises.
Households (the left block in the diagram) earn income by supplying labor to the labor market, capital to the capital market, and land and raw materials to land and raw materials markets. They sell factor services to firms, receive income (wages, interest, profit, rent) and buy goods and services produced by firms. Households' income turns into their spending when they buy consumer goods and services in goods markets.
Firms (right block) buy inputs from factor markets, use them to produce output, and then supply those outputs to goods and services markets. Expenditures by firms to purchase factors of production are converted into household income. By selling their finished products in the markets for goods and services, firms receive income and thereby reimburse their costs for the purchase of resources.
The flow of factors of production and goods is managed through markets for factors of production (lower block) and markets for goods and services (upper block). The external circulation in the diagram shows the physical movement of goods and factors of production between households and firms. The internal financial circuit in the diagram shows the flows of payments, flows of expenses and income. Household income flows move from firms to households at the bottom of the domestic circuit. The flow out of the household sector represents the amount of payments for goods purchased.

• From the economic circulation model it follows that in the economy as a whole:
• the amount of sales of firms is equal to the amount of household income;
• the value of total production is equal to the total amount of household income;
• income is equal to expenses for the purchase of goods and services.

These findings will be important for macroeconomic analysis, when constructing macroeconomic models.
We have found out in the most general terms how a mature market economy operates. At the same time, it must be borne in mind that the process of emergence and development of a market economic system is a long process. In the history of economically developed countries, it took more than one century. In this historical process, the conditions or prerequisites for the emergence and development of a market economy develop. The most important of them are the social division of labor and specialization, the development of private ownership of the means of production, the personal interest of producers and owners, freedom of choice and freedom of movement of factors of production, government intervention in the economy, morality, the norms of which have been developed by humanity.
1. The fundamental condition for the emergence and development of a market economy is social division of labor and specialization. They increase labor productivity, lead to the emergence of surplus products and thereby lead to the development of a commodity economy and market exchange.
2. For the normal functioning of a market economy, development is necessary private property for the means of production. The social division of labor and specialization, causing the isolation of producers, also stimulate the process of development of private property. Private property is the dominant form of property in a market economy. It comes in the form of individual private property and corporate (joint stock) private property. At the same time, in countries with developed market economies, state, mixed and cooperative property, as well as the property of public organizations, play an important role.
3. Private property creates new incentives to increase labor productivity, to improve technology and organization of production. Appears personal interest producers and owners in more efficient placement and use of their resources. It manifests itself in various ways, in particular, the owners of labor force strive to earn a higher salary, the owners of money capital - to receive a larger percentage, entrepreneurs - to obtain greater profits, and consumers - to purchase more for a lower price.
4. In order for a market economy to function effectively, so that resources are used to their greatest benefit, it is necessary freedom of choice and freedom of movement of factors of production. These freedoms are closely related to private property. Freedom of choice means that resource owners can use resources as they wish. Consumers are free to buy goods as they see fit to satisfy their needs. If everyone chooses the best option, then society as a whole also benefits. Historically, this is why the spread of a market economy became possible only with the abolition of feudal restrictions and the development of political democracy and personal freedom.
5. A condition for the effective functioning of a market economy is also government intervention in the economy, its government regulation. We will talk about this in detail in subsequent sections of the textbook. Now it is necessary to keep in mind that a market economy has its shortcomings, and these shortcomings can be neutralized and somehow corrected by state regulation of a market economy.
6. For the effective functioning of a market economy morality is necessary, the norms of which have been developed by humanity. These are such universal human values ​​as respect for human life, justice, honesty, rejection of exploitation, despotism and authoritarianism, freedom of moral choice, and the desire not to harm any forms of life. History shows that a market economy, focusing on prices and profits, appeals to the most selfish instincts of man, generates an excessive desire for wasteful consumption of material goods, and creates conditions for the development of selfishness, exploitation and injustice to the detriment of justice and humanity. This is especially true for immediate business tasks. In the long term, it turns out that honest and fair business behavior is more effective. Many economists, philosophers, and sociologists believe that moral behavior and social responsibility of business in the long term are compatible with business efficiency. It is no coincidence that in the era of the development of a market economy in countries that had achieved a high standard of living, the Protestant ethic spread, which largely met the challenges of efficient use of society's limited resources.
This section examined the general mechanism of the functioning of a market economy using the example of a general model economic circulation. The role of prices and markets in solving fundamental economic problems of society was also identified. The conditions for the emergence and development of a market economy are identified. Further consideration of the features of the functioning of a market economy involves the introduction of additional important elements of the system. The point is that for the normal functioning of markets for goods and factors of production, a market infrastructure is necessary.
Infrastructure economies in general, in the broadest sense of the word, are institutions, organizations, industries and parts of the economic system that ensure the normal functioning of the entire economy or its individual parts and industries. For example, transport network is an infrastructure that ensures the technological unity of all sectors of the economy, continuity and complementarity of all production systems. Conventionally, the economy can be divided into production, social and market infrastructures. They are all closely related.
Production infrastructure is a complex of industries that provide external conditions for the development of production. It includes freight transport, roads, electricity, gas and water supply, warehousing, communications, and information services. Social infrastructure is a complex of industries related to the reproduction of labor. This complex includes healthcare, education, housing and communal services, passenger transport, leisure activities, catering, and household services.
Market infrastructure- this is a set of organizational and legal forms, various institutions, organizations serving various markets and the market economy as a whole and ensuring their functioning. In the entire complex and interconnected complex of market infrastructure, one can distinguish the infrastructure of the labor market, the capital market, the land market, the market for goods and services, as well as the macroeconomic infrastructure (see Fig. 2.10). The most important elements of each infrastructure at this stage of familiarization with a market economy can only be listed. In the future we will get acquainted with some of them, for example, with the activities of the Central Bank and the Ministry of Finance. It is possible to cover the full variety of market infrastructure only by studying specific economic disciplines, such as finance, money circulation and credit, statistics, accounting and auditing, marketing, enterprise economics, trade economics, etc.

Rice. 2.10

• Labor market infrastructure includes:
• labor legislation;
• employment legislation;
• legislation on social protection;
• labor protection legislation;
• Ministry of Labor and Employment;
• local employment and social protection authorities;
• public and private exchanges and employment centers;
• recruitment agencies (recruiting agencies);
• public and private centers and systems for advanced training and retraining of personnel;
• trade unions;
• collective and individual labor agreements;

• Capital market infrastructure- this is first of all:
• banking legislation;
• Currency legislation;
• legislation on foreign investment;
• exchange legislation;
• Central bank;
• government loans and public debt;
• commercial banks;
• stock exchanges;
• Insurance companies;
• savings banks;
• pension funds;
• investment banks;
• mortgage and land banks;
• building societies;
• financial companies;
• venture companies;
• consulting and audit firms;
• business unions and professional associations;
• special informational and professional periodicals.

• Land market infrastructure assumes the following elements:
• land legislation (Land Code);
• environmental legislation;
• land Registry;
• Ministry of Land Management;
• Ministry of Environment;
• state regional land committees;
• real estate agencies;
• consulting and information agencies in the real estate market;
• mortgage and land banks;
• professional associations of real estate firms;
• special informational and professional periodicals.

• Infrastructure of the market for goods and services includes the following elements:
• trade legislation;
• advertising laws;
• legislation on consumer protection;
• sanitary and hygienic standards;
• wholesale trade enterprises;
• retail establishments;
• commodity exchanges;
• transport companies;
• storage facilities;
• consulting firms;
• advertising agencies;
• information periodicals.

• Macroeconomic infrastructure in a market economy consists of the following major institutions:
• budget structure and budget process (budget code);
• tax legislation (Tax Code);
• federal budget;
• Ministry of Finance;
• fiscal policy;
• Central bank;
• money-credit policy;
• state arbitration;
• Ministry of Economics;
• structural policy;
• Ministry of Foreign Trade;
• foreign economic policy;
• public and private institutes of economic analysis and forecasting;
• Institute of Economic Advisers to the President.

Thus, market economic system- this is a system where resources are distributed and used, mainly through the mechanism of market competition, the center of which is the price of the good. The market economic mechanism is complemented by government regulation of the economy. From the point of view of socio-economic relations, private ownership of the means of production dominates in this system, but at the same time state, mixed and cooperative ownership play a large role. Assessing this system by the level of material and technical development, we can define a market economic system as an industrial and post-industrial economy. Most market economies are industrial societies with an industrial structure dominated by manufacturing and extractive industries. In the most developed countries, a post-industrial information economy has formed with a predominance of the service sector in the structure of the national economy.

2.3. Enterprises in a market economic system

The main economic agents making decisions in a market economy are households, enterprises (firms) and the state. The scope of action of households and private firms is usually called private sector of the economy, and the scope of action of the state and state-owned enterprises is called the public sector. In the private sector, the household sector and the business sector are respectively distinguished. This section of Topic 2 focuses on the business sector and the enterprises operating within it.
To simplify the presentation of economic theory in the framework of an initial economics course, we use the concepts of enterprise and firm as synonyms. Let us remind you that that the enterprise, or firm, is an economic agent that makes decisions about the production of goods for sale using resources purchased on the market. A company acts as a certain set of material and intangible resources, for example a factory, mine, store, hairdresser, bank, which performs the functions of producing goods and services. On the other hand, a firm is an organizational and legal structure that owns and manages these production resources.
There are a great variety of different enterprises operating in a market economy; in particular, in the American economy there are about 20 million firms, and in the Russian economy - about 3 million. All this variety of enterprises can be combined into several groups. Grouping is carried out according to various criteria, including by type of ownership, size of the company, industry, organizational and legal form, that is, by legal status.

• By form of ownership enterprises are divided as follows:
• mixed,
• joint,
• public organizations,
• state,
• private,
• cooperative,

Mixed enterprises- these are enterprises in which part of the capital belongs to private individuals, and part belongs to the state. According to accepted terminology joint ventures- these are enterprises with the participation of foreign and national capital. In the Russian economy in 2000, out of 3,106 thousand enterprises, 11.2% were state and municipal enterprises, 74.4% were private enterprises, 6.9% were enterprises owned by public organizations, 7.5% are enterprises of mixed ownership and joint ventures, including those owned by foreigners. State and municipal enterprises employed 38.8% of all people employed in the economy, private enterprises employed 44.3% of employees, enterprises of public organizations - 0.8%, and mixed enterprises - 14.9% of all people employed in the economy (see Fig. 2.11).
In addition to private, state, mixed and joint enterprises, cooperative enterprises and enterprises of public organizations also operate in a market economy. Cooperatives- voluntary associations of people on the basis of membership for joint activities based on their personal labor and other participation and the pooling of property shares. There are production cooperatives, cooperatives that provide services to their members, and consumer cooperatives.
A production cooperative is a commercial organization. Its constituent document, the charter, is approved at the general meeting of the cooperative. The property of the cooperative is divided into shares in accordance with the charter. Each member of the cooperative has one vote when making decisions. The consumer cooperative is a non-profit organization.
Non-profit (non-profit) organizations also include public organizations and various foundations. Public organizations (associations) are voluntary associations of citizens who, in accordance with the procedure established by law, have united on the basis of their common interests to satisfy spiritual and other non-material needs. To achieve their goals, public organizations can engage in entrepreneurial activities. Participants in these organizations are not liable for their obligations and do not retain rights to the property transferred to them. In Russia, out of the total number of enterprises, 213 thousand are enterprises of public organizations, the share of which is 6.9% of the total number of enterprises.

Rice. 2.11
Depending on the size, small, medium and large enterprises are distinguished, and indicators such as sales volume, number of employees, and capital levels can be taken as a criterion. Different countries have different definitions of what a small or large enterprise means. For example, in Russia in the industrial sector small An enterprise where the average number of employees does not exceed 100 people is considered.
By industry, industrial, agricultural, trading, banking enterprises, etc. can be distinguished. For example, in Russia in 2000, out of 3,106 thousand enterprises, 372 thousand were industrial enterprises (12% of the total number of enterprises), 342 thousand were agricultural (10.5%), 309 thousand enterprises operated in construction (10% ), 1033 thousand - in trade and public catering (33%), 87 thousand - in transport and telecommunications (3%), 54 thousand - in the field of finance and credit (1.7% of the total number of enterprises) ( see Fig. 2.12).

Rice. 2.12

• Organizational and legal form enterprises differ as:
• individual private enterprises,
• partnerships (partnerships),
• corporations.

Individual private enterprise- This is an enterprise that is individually privately owned. The owner of the company is the owner of all the resources of the enterprise, organizes and manages production in his own interests, manages income, receives all profits, and bears personal responsibility for all obligations of the company (that is, bears unlimited liability).

• Advantages of such an enterprise are:
• ease of organization of the enterprise, no problems with founding;
• freedom of action, one's own boss;
• strong economic incentives, everything depends on the owner and everything goes to the owner.

• But flaws This organizational and legal form of the enterprise is also significant:
• limited own financial and material resources, difficulties in obtaining a loan;
• the entrepreneur is forced to perform all basic management functions, there is no specialization in production management;
• unlimited liability, the owner risks not only the capital invested in the business, but also all personal property.

Partnership (partnership) is an enterprise organized by two or more persons who jointly own and manage the enterprise. Partnerships arose as an organizational and legal form that, to some extent, eliminated the shortcomings of an individual private enterprise. Partners pool their financial resources and professional skills. In the same way, they distribute risks, share profits or losses. Partnerships are viable with a limited number of participants. In a number of cases, limited liability partnerships arise, where, along with the main participants who are fully responsible for the activities of the enterprise, there are limited liability participants.

• There are several partnerships benefits:
• they are as easy to organize as an individual private enterprise;
• specialization in management is used;
• financial opportunities expand, equity capital increases and opportunities for obtaining credit improve.

• Partnership as an organizational and legal form of an enterprise has a number of shortcomings:
• separation of functions in management can lead to inconsistency and disagreements between partners;
• financial resources are still limited, although they exceed the capabilities of an individual private firm;
• the duration of the partnership is uncertain, there is a threat of disintegration;
• unlimited liability of partners is a significant inconvenience and limits innovation.

Most of the disadvantages of an individual private enterprise and partnership are removed with such an organizational and legal form of the enterprise as a corporation. That is why the corporation is the leading and most developed form of business organization in market economies. Corporation(joint stock company) is an enterprise that has the form of a legal entity, where the liability of each owner is limited to his contribution to the enterprise. This is a share-based society. The size of the share (contribution to the enterprise) is evidenced by the share. Numerous disparate capitals are combined into corporations. By purchasing securities (stocks and bonds), anyone can become the owner of a corporation.

The example of the American economy, one of the most developed market economies of the early twenty-first century, shows that individual private enterprises make up the vast majority of operating enterprises (73.1%), but their share in total sales is only 5.2% of total sales . On the other hand, the number of corporations is much smaller, only 19.9% ​​of the total number of enterprises, but their share of total sales is 89.4%. Additionally, corporations receive the lion's share of profits, accounting for 72.1% of all profits in the American economy. Among enterprises there are the fewest partnerships (see Figure 2.13). The distribution of enterprises by organizational and legal forms in the Russian economy is approximately the same. This can be judged from the following data. In 2000, there were 2,312 thousand privately owned enterprises operating in Russia. Of these, 75.1% were individual private enterprises and partnerships, and 24.9% were joint-stock companies (legal entities).

• The advantages of a corporation determine the leading role of this form of enterprise in a market economy:
• The problem of financial restrictions is largely eliminated. Corporations raise additional capital by selling shares. Stock exchanges, where shares are bought and sold, make it easier for a corporation to raise capital. Greater reliability of corporations makes bank credit more accessible;
• it is a limited liability company. The owners of the corporation (stockholders) risk only the amount they paid for the shares. In bankruptcy, creditors sue the corporation as a legal entity, but not the owners of the corporation as individuals;
• by attracting cash capital, the corporation has more opportunities to increase the scale of production and use modern technology;
• there are also great opportunities to use specialization in production and enterprise management;
• the corporation is more stable, which opens up opportunities for long-term planning and growth. Being a legal entity, it cannot suddenly disappear, unlike an individual private company.

• The advantages of a corporation are significant, but this form of enterprise also has disadvantages:
• The procedure for registering a corporation as a legal entity is quite complicated;
• This organizational and legal form contains opportunities for abuse. Limited liability sometimes allows you to avoid personal liability for questionable transactions;
• double taxation of profits. This refers to that portion of profits that is paid out as dividends to shareholders;
• In a corporation, a gap arises between the ownership function and the management function. Owner-shareholders hire managers. The majority of shareholders, holders of small blocks of shares, have virtually no influence on the actions of managers. Company managers may not act in the interests of the owners and may personally enrich themselves at the expense of the company.

A corporation is formed on the basis of a charter, an official document approved by government agencies. The charter determines the amount of the authorized capital and the initial number of shares that are sold to shareholders. The funds received after the sale of shares are used to organize production activities. If a corporation makes a profit, some of the profits may be paid out to shareholders as dividends. In theory, all shareholders can participate in the elections of the board of directors and managers. But practically this does not happen. Modern large corporations have tens of thousands of shareholders who do not participate in shareholder meetings and elections of the corporation's governing bodies.
A typical corporation structure is shown in Fig. 2.14, where the most important divisions of the corporation are highlighted (sales department, production department, financial department) and the general management structure of the corporation (meeting of shareholders, board of directors, president, vice presidents).

Rice. 2.14
All enterprises operating in a market economy are economic agents, or subjects of a market economy. They independently make decisions about production and marketing of products. At the same time, they focus on prices and demand from consumers, and compare their costs for resources with product prices. When making decisions about the production of a particular product, enterprises take into account the general economic situation in the national and global economy.
All of the above aspects of the behavior of economic agents are discussed in various sections of this textbook. Consumer behavior and demand theory are presented in topics 3-4; producer behavior, supply theory are discussed in topics 3, 5; analysis of resource markets is given in topic 6; the macroeconomic situation and the role of the state are characterized in topics 7-11; foreign economic aspects are discussed in topics 12-13.

2.4. Economic role of the state

The main mechanism for the distribution and use of limited resources in a market economy is the market mechanism, where competition and prices occupy a central place. At the same time, in all countries with a market economy, the state plays a significant role in the economy. The state not only redistributes resources, provides a legal basis for decision-making by economic agents, implements economic policies, but also, in some cases, organizes production in state-owned enterprises. All this means that a modern market economy is a mixed economy, where, along with the private sector, the public sector of the economy also operates, the market organizational and economic mechanism is complemented by the mechanism of state regulation of the economy. In a broad sense, the public sector of the economy includes all economic resources owned by the state, all organizations through which state regulation of the economy is carried out. This includes the state budget, state-owned production enterprises, state organizations in the field of management, healthcare, education, defense, and state lands.
Schematically, in general terms, the economic role of the state can be represented using the model of economic circulation known to us, which is supplemented by a third economic agent, the state (Fig. 2.15).

Rice. 2.15
Model of economic circulation with state participation. Let's put the state at the center of the circular model. The flows between the government and the resource market, indicated by the arrows, reflect the government's purchases of resources, such as hiring and paying government employees or building a school. Flows between the state and the market for goods and services show government purchases of goods and services, such as paper, computers, and weapons. On the left and right are the flows between the state and households, between the state and enterprises. The government provides public goods and services to households and businesses, the production of which is financed by taxes collected from households and businesses. The circular model shows how the government intervenes in the economy and redistributes resources and products through the public finance system, that is, through government expenditures and revenues.
Why is government intervention necessary in a market economy? How does economic theory explain the existence of the public sector in a market economy? We will answer these questions in the following sections of the textbook.
In the history of the market economy of the nineteenth and twentieth centuries. In general, there is a strengthening of the economic role of the state. The scale of the state’s economic activity is evidenced by the colossal increase in government expenditures and revenues and the increase in the state’s share in the redistribution of national income. In particular, on average, the share of total government spending in the gross domestic product (GDP) of the most economically developed countries in the twentieth century increased from 10% in 1913 to 49% in 2000. It should be noted that these expenses increased in 80 -90s twentieth century, when the process of denationalization and privatization intensively developed in these countries. The noted trend generally applies to the economies of countries such as the USA and Great Britain. If in the 20s. In the 20th century, the share of government spending in the GDP of these countries was about 20%, but in 2000 in the USA it increased to 29%, and in the UK - to 40%. For comparison, it is interesting to provide data for Russia. In 2000, government spending in Russia accounted for 28% of gross domestic product.

Rice. 2.16
Compared to the growth in the share of government spending in GDP, the development trend of the public sector in the production of goods and services looks somewhat different. The public sector in this area is one of the areas of government intervention in the economy. The public sector in the sphere of production is represented by state enterprises, that is, it represents the activities of the state as a producer of products and services. The public sector in developed Western countries grew at the highest rates in the 50s - 70s. XX century In the 80s - 90s. under the influence of denationalization and privatization, the scale of the public sector was reduced.
For example, in Great Britain, the importance of the public sector in the manufacturing sector increased in the post-war period. State-owned enterprises operated largely independently in the market, but in general their activities were controlled by executive authorities and parliament. The public sector developed in such sectors of the economy as the coal industry, shipbuilding, metallurgy, electricity and gas supply, nuclear energy, railway and air transport, aerospace industry, and telecommunications. The peak in the development of the public sector was reached in the late 70s. In 1979, before the Thatcher government came to power, products produced in state-owned enterprises accounted for 11.5% of GDP, public sector investment accounted for 14% of total investment in the UK economy, state-owned enterprises employed 1.5 million people, which accounted for 7.3% of all employed. Beginning in 1979 and throughout the 80s and 90s, processes of denationalization and privatization began in Great Britain, which led to a reduction in the number of state-owned enterprises and industries where the public sector occupied a dominant position. The share of the public sector in the economy during this period decreased several times, in particular in the mid-90s. The share of state-owned enterprises in GDP, total investment and employment was about 3%.
In the Russian economy, state and municipal enterprises currently account for 11.2% of the total number of enterprises, 38% of all people employed in the national economy work at state enterprises, and the public sector produces about 35% of all products. This is a significant reduction from the early 1990s, when the public sector produced more than 90% of the country's gross domestic product.
It should be noted that, within the framework of the general trend of increasing the economic role of the state and the share of public expenditures, there were counter-trends leading to a decrease in these expenditures under the influence of various economic, political and ideological factors. This was manifested in a decrease in the economic role of the state in some periods of the economic history of developed countries. In the second half of the twentieth century, the attitude of governments and the public towards government intervention in the economy of capitalist countries changed. These changes were most clearly embodied in theoretical interpretations of the economic role of the state. If in the 50s - 70s. the concept of a “dominant state” dominated, then in the 80s - the first half of the 90s. The most common approach was from the perspective of a “minimalist state.” Since the mid-90s, the idea of ​​an “effective state” has become increasingly widespread.
The state in one way or another influences all spheres of the market economy, production, exchange and consumption. Take, for example, the production, market and consumption of automobiles in the United States. This is production within large corporations. Prices are formed in the car market under the influence of supply and demand. Outwardly, it seems that this is a free market, independent of the state. But upon closer examination it turns out that this is far from the case.
Let's start with the fact that you cannot build an automobile plant in any place the company desires. Land use is regulated both at the level of the whole society and at the local level. The cost of car production is also influenced by the state, if only because the government sets the minimum wage. The development of automobile production depends on competition from foreign automobile companies, and this competition is either limited or stimulated by foreign trade and foreign exchange policies of the government. Further. The Federal Trade Commission determines whether automobile advertising is appropriate or misleading. Antitrust laws prohibit price increases by agreement between car manufacturers. The Occupational Safety and Health Administration forces companies to adhere to worker safety and health regulations in auto plants. The state social security system provides funds in case of loss of ability to work. The Federal Reserve System (Central Bank) influences the amount of credit provided to automobile companies by influencing the amount of money in circulation in various ways. The Ministry of Finance influences the amount of capital investment in automobile production by changing the income tax and providing tax incentives. And so on.
Thus, the market mechanism in economically developed countries is regulated by the state. This regulation occurs at the company level, as well as at the industry, regional and national levels. The problem is always to find the optimal balance between the market mechanism and government regulation of the economy, to determine the most effective forms of government intervention in the economy.

• The economic role of the state in its most general form is manifested in the fact that it performs certain economic functions. It is necessary to pay attention to the following most important economic functions of the state:
• firstly, ensuring the legal basis for the activities of economic agents, consumers and producers;
• secondly, elimination and compensation of shortcomings of the market economic mechanism;
• thirdly, the implementation of state economic policy.

Providing a legal basis for the activities of economic agents involves the development and implementation of various laws that provide equal conditions for decision-making by both producers and consumers. These are laws that define the rights and forms of ownership, provide the conditions for concluding and fulfilling contracts, regulate relations between employees and employers, define the rules and norms of behavior of sellers and buyers in various markets, and formulate the conditions for foreign economic activity. The state also provides numerous services to protect property, people, enterprises, market organizations, and creates various systems, norms, procedures, and standards that facilitate the operation of the market. These services include police protection, the judicial system, the monetary system, and a system of standards for measuring quality, mass and volume.
Elimination and compensation of shortcomings of the market economic mechanism is the most important function of the state in a market economy. In modern economic theory, the justification for the need for state intervention in the economy in a market economic system comes from the positions of both macroeconomic and microeconomic theory. Economic theory identifies several shortcomings (failures) of the market economic mechanism. These shortcomings are compensated by the state, by state regulation of the economy. Each of the market's shortcomings gives rise to one or another direction of its regulation.

• The main disadvantages of the market economic mechanism include:
• macroeconomic instability - fluctuations in economic activity, the emergence of unemployment, underutilization of production capacity, inflation, state budget deficit, foreign trade balance deficit;
• the emergence and development of monopolies, restriction of competition;
• the presence of external, or side effects;
• the problem of production of public goods;
• problem of asymmetric information;
• inequality in the distribution of resources and income.

Macroeconomic instability: fluctuations in economic activity (economic cycles), the emergence of unemployment, underutilization of production capacity, inflation, state budget deficit, foreign trade balance deficit - are characteristic of a market economy. Macroeconomic instability reduces economic efficiency in many ways. For example, unemployment means lost production, and an increase in unemployment by 1% means a reduction in economic growth by 2-3%.
A market economy is based on private ownership of the means of production. Millions of producers are isolated from each other, each of them acts at their own peril and risk, each in their own way assesses the scale of demand and determines production volumes. The spontaneity of economic development predetermines the possibility of a mismatch between supply and demand, the possibility of underutilization of society's resources (labor, equipment).
In a market economy, economic development occurs unevenly, with periods of rapid economic growth and inflation followed by economic recession with high unemployment. In other words, economic development occurs in the form of economic cycles, or business cycles. The state is making efforts to stabilize the economy, aimed at achieving full employment, price stability, and maintaining stable economic growth rates. This is achieved through the government's macroeconomic policies, which include fiscal, monetary and foreign economic policies. Thus, macroeconomic instability, being a disadvantage of a market economy, leads to the emergence of such a direction of government intervention as macroeconomic policy.
The emergence and development of monopolies, restriction of competition. Competition- the most important condition for the existence of a market economy. Free competition allocates resources most efficiently and determines what to produce and for whom to produce it, taking into account the needs of society. But in the course of competition, weak, inefficient producers leave the market, while strong, most productive producers remain and expand their production. Gradually they begin to influence the market, gain market power, and monopolies emerge. The emergence and development of monopolies is accompanied by the fact that monopolists influence prices, limit production, and in some cases prevent the introduction of more advanced technology. Consumers pay higher prices for the products they receive, their real incomes decrease, and the incomes of monopolies increase, but not due to increased production efficiency, but due to the redistribution of income through the mechanism of high prices. In general, this means that competition is limited and the market system begins to use limited resources inefficiently.
In order to support competition, the state pursues an antimonopoly policy. Many countries have antitrust laws and government agencies to enforce them. In accordance with this legislation, the state limits mergers of large manufacturers and monitors the market share controlled by a large firm. In addition, society influences prices for the products of natural monopolies that operate in the field of industrial infrastructure (water supply companies, energy and gas supply companies, railway companies, etc.).
The presence of external, or side, effects. External effects- these are costs or benefits that accrue to “third parties” who are not involved in the market transaction. That is, external effects affect producers or consumers who are not involved in the process of buying and selling a given product.
For example, negative externalities (third party costs) arise from environmental pollution. Suppose a textile factory uses river water for dyeing. Waste water is discharged into the river. As a result, fish disappear, adjacent meadows become polluted, poor-quality hay leads to a deterioration in the quality of milk, and children get sick. All these losses and social costs are not taken into account in the price of the fabric. The price is lower than actual costs. It turns out that the market forms a price that does not reflect the real costs of producing the product. The demand for cheap fabrics is growing, and additional resources are being involved in their production. This is a market failure that society neutralizes through government regulation. In this case, the regulation of external effects includes taxes on pollution, the establishment of sanitary and hygienic standards, and control over production technology.
Production problem public goods. Most of the goods produced are intended for personal consumption (private goods). Their peculiarity is that they cannot be consumed by others. But there are goods whose consumption is available to many people at the same time, for example, the light of a lighthouse at sea, defense, and street lighting. These are public goods. What is the market inefficiency here? The fact is that there is a need for public goods, but the market does not create effective demand and supply for these goods. Nobody wants to pay for this benefit, believing that they can do without it. This means that no one produces it. This is the so-called "free ride" problem. People can benefit from using public goods without paying for them. They cannot be excluded from consuming these goods, and therefore, as a rule, they are not interested in paying for them.
In solving this problem, the state can decide to produce public goods in state-owned enterprises or attract private producers through the public procurement system. To do this, it must receive funds from society through a system of general and local taxes. Thus, the problem of producing public goods in a market economy leads to the emergence of state entrepreneurship, the development of a public procurement system, and the development of a taxation system.
The problem of asymmetric information. Asymmetric information- this is incomplete, unevenly distributed, simply poor-quality information. The functioning of the market largely depends on the extent to which market participants have information about the consumer properties of goods, the capabilities of a particular technology, and trends in market conditions. Incomplete information and its uneven distribution between buyers and sellers lead to the fact that buyers and producers can make wrong decisions and use resources inefficiently. When making a transaction, one of the participants is in a more advantageous position. A real market is characterized by asymmetric information.
A classic example of asymmetric information is provided by the healthcare industry. The patient is not able to independently choose the best treatment method or the right medicine, since he does not have professional information. If medical care were provided only on a private basis, then doctors, in an effort to earn more income, would prefer the most expensive, often redundant and not always high-quality treatments and medications. In these conditions, the state organizes a public health care system and adopts laws on the protection of consumer rights.
In conditions of asymmetric information existing in the market, the dictatorship of the manufacturer arises. This leads to the state taking over the provision of services. It is assumed that the public sector in a political democracy is subject to public control. In addition to laws on consumer protection, asymmetric information is neutralized by laws on advertising, on labor protection, on sanitation and hygiene in food production, laws on fraud, on insurance of bank deposits, etc.
Inequality in the distribution of resources and income. The distribution of income generated by the market may not meet the norms of universal morality and the norms of justice. In particular, the market does not provide all members of society with essential goods (food, housing, treatment, etc.). The market system provides those who can pay, who own the factors of production. Resources are distributed unevenly among people not only due to differences in labor contribution, but also due to uneven market conditions, due to differences in physical and mental abilities. Injustice and inequality in the distribution of goods and resources can reduce incentives to work effectively.
Society adjusts the free market's decisions on income distribution. The state does this through a system of progressive taxation, a pension system, unemployment benefits, social assistance for the disabled, and large families. The redistribution of resources and benefits for social purposes is one of the most important areas of government regulation in a market system.
Market shortcomings are analyzed in more detail in the theory of the business cycle, the theory of monopoly, the theory of external effects, the theory of public goods and public choice, the theory of asymmetric information, and the theory of welfare.
The implementation of state economic policy is also an important economic function of the state in a market economy. Economic policy is a set of various measures taken by the government to achieve specific economic development goals. Economic policy is a complex social mechanism.

• In general terms, the following most important stages and elements can be distinguished in the economic policy mechanism:
• the process of its formation,
• implementation mechanism,
• evaluation and feedback, which involves adjusting the policy depending on its results.

The process of economic policy formation in a market economy is based on a relatively developed system of political democracy. It is a system of multi-party and representative democracy. Multipartyism is a key point in the process of forming a dynamic economic policy. It is a natural result of the existence of various economic interests in society. At the same time, a multi-party system creates barriers to the monopolization of power and stagnation, and allows various public organizations to control the activities of government bodies. All this presupposes the formation of an economic policy that meets the interests of the majority of members of society.

• The main links in the economic policy formation mechanism consist of numerous social forces, including:
• electorate
• political parties,
• research organizations,
• various associations based on social and professional characteristics,
• social movements,
• lobbying systems,
• mass media,
• legislative and executive bodies of state power.

The most important element in this process are government bodies. This is the government, special government bodies in the economic sphere (Ministry of Finance, Central Bank, Ministry of Economic Development and Trade, Ministry of Industry and Agriculture, Ministry of Foreign Trade), special government structures such as the Presidential Council and the Council of Economic Advisors, parliament, standing commissions and parliamentary committees. All of them provide both direct and feedback between the interests of various sectors of society and the economic policies of the government.
In its most general form, the process of economic policy formation can be represented schematically as the interaction between voters, legislative bodies and the government (Fig. 2.17). Voters give preference to certain candidates for legislative bodies. Candidates offer their voters programs that include the candidates' positions on economic policy issues. Thus, by voting, voters express their preferences for economic policy as a whole, and not for each of its directions. Legislators make fundamental decisions on government spending and revenues, adopt new laws and economic programs, and approve the main directions of economic policy. In the process of making and executing decisions on economic policy, interested voters and organizations unite into groups that try to persuade legislators and the government to make the decision they want. The activities of these interest groups are called lobbying. Government bodies, based on decisions of legislative bodies, enforce laws, monitor their implementation, propose specific regulatory measures and implement economic policies.

Rice. 2.17
In the process of forming economic policy, its most important goals and directions are determined. Among the goals of economic policy, general and special ones are distinguished. The general objectives of economic policy in a market economy change little over time or with changes in governments.

• These goals are:
• creating favorable conditions for the socio-economic development of society,
• growth in the standard of living of all segments of the country's population;
• increasing the efficiency of the national economy;
• increasing the competitiveness of the national economy in the world economy.

The implementation of all directions of economic policy presupposes the achievement of these common goals. At the same time, there are more specific special goals of economic policy, determined by the characteristics of a given stage of economic development, the characteristics of the development of a given country.

• In particular, these include:
• maintaining high and stable rates of economic growth,
• reducing unemployment and achieving full employment,
• reducing inflation and achieving price stability,
• reduction in the level of idle production capacity, full use of the production apparatus,
• modernization of the production apparatus in accordance with the requirements of the modern scientific and technological revolution (STR),
• stimulation of scientific and technological progress, development of science and technology,
• reforming market infrastructure,
• support for competition and entrepreneurship,
• fair distribution and redistribution of income,
• reducing the deficit of foreign trade and balance of payments.

The specific goals of economic policy change over time, with changes in governments, and priorities in economic policy change, as, for example, in the second half of the twentieth century. priorities in the economic policy of developed Western countries have changed. In particular, the priorities of the 50-60s. differed from the priorities of the 70-80s. If at the first stage the main goal of economic policy was to maintain full employment (fight unemployment), then at the second stage it was to maintain stable rates of growth of the money supply (fight inflation).
During the development of a market economy, various directions of economic policy were formed. There are numerous classifications of these areas, but they are all quite arbitrary, since there is a close relationship between all areas. For example, employment policy aimed at reducing unemployment can be identified as a separate area, or it can be included as part of social policy or as part of structural policy.

• In modern conditions, the following main directions of government economic policy in a market economy are distinguished:
• budgetary and financial (fiscal),
• monetary (monetary),
• foreign economic,
• structural.

Each of the main directions includes different types or forms of economic policy, for example, foreign economic policy includes foreign trade policy, policy towards foreign capital, and foreign exchange policy. Some specific types of economic policies were mentioned above when the second economic function of the state was considered, that is, when it came to eliminating and compensating for the shortcomings of the market economic mechanism.
The characteristics of certain areas of economic policy are determined by many factors, depending on (1) what is the “package” of methods or tools for its implementation, (2) in what direction these tools are used depending on the economic situation, (3) what is the the scope of action of certain instruments, (4) on the duration of the period for which the economic policy is designed, (5) on its domestic or foreign economic orientation.

• Depending on these criteria, in particular, the following characteristics of government economic policy can be used:
• stimulating (expansionist), restraining (restrictive), stabilizing;
• macroeconomic, microeconomic;
• short-term, medium-term, long-term;
• internal, external.

From the above characteristics, it is necessary to dwell on the concepts of macro- and microeconomic policies. Macroeconomic theory studies the economy as a whole, the interaction between such general economic values ​​as economic growth rates, unemployment rates, inflation rates, the scale of government spending and income, etc. Therefore, macroeconomic policy is a set of government measures aimed at changing general economic values ​​and affecting the economy as a whole . Traditionally, macroeconomic policy includes fiscal and monetary policy.
Microeconomic theory studies the behavior of consumers and individual producers, the formation of production costs and prices for goods and factors of production. Thus, microeconomic policy is a set of government measures aimed at changing the behavior of individual producers and consumers in individual markets and creating favorable conditions for the operation of the competition mechanism, for example, antitrust policy, deregulation policy, social and demographic policy. Methods of microeconomic policy can be general economic, operating within the entire economy, but they are aimed at individual economic entities. The same antitrust laws apply throughout the state, but are aimed only at those firms that restrict competition and inflate prices.
In terms of results, both types of economic policies are dual in the sense that both have both macroeconomic and microeconomic effects. Thus, government measures of a microeconomic nature directly influence firms’ decisions in the areas of prices, capital investments, wage rates, the amount of loans they receive, etc. (microeconomic effect). But the microeconomic effect accumulated over a long time leads to changes in macroeconomic values ​​- the rate of economic growth, the scale of consumption and accumulation, etc. (macroeconomic effect of microeconomic policy).
Carrying out a certain economic policy presupposes the existence in the market system of a mechanism for its implementation, or implementation. The mechanism for implementing economic policy is a mechanism of state regulation of the economy, which includes a system of administrative and legal regulation and a system of economic methods of regulation.

• Accordingly, all methods of implementing economic policy can be combined into two general groups:
• administrative and legal methods of regulating the economy,
• economic methods of regulating the economy.

Administrative and legal methods Economic regulation is primarily economic legislation, which determines the legal framework and norms for the implementation of economic policy. This legislation includes such sections as property and company laws, tax laws, money circulation laws, banking laws, antitrust laws, foreign trade laws, etc. (see the section on the infrastructure of labor markets, capital, land, goods and services, and macroeconomic infrastructure).

• Economic methods of regulating the economy can be conditionally combined into several groups:
• fiscal methods of regulating the economy, including tax and budgetary methods, for example changes in corporate income taxes and government spending on weapons purchases;
• monetary methods of regulating the economy, for example changing the interest rate on loans that the state central bank provides to commercial banks;
• planning and programming of economic development, in particular the development of economic development plans and targeted programs for the development of industries, regions, programs for the technical modernization of industry.

Later, in the sections of the textbook devoted to macroeconomics and international economics, we will get acquainted in more detail with the main directions of economic policy, the theoretical justification of this policy, and methods of its implementation.

The most important terms and concepts

2.1. Various economic systems

economic system	traditional economics
material and technical structure of the economy	natural economy
socio-economic structure	commercial farming
organizational and economic structure	market economy
fundamental economic problems	centrally planned economy
criteria for classifying economic systems	mixed economy

2.2. General characteristics of a market economy

	market infrastructure
economic agents	labor market infrastructure
main forms of markets	capital market infrastructure
economic circular model	land market infrastructure
conditions for the emergence and development of a market economy	infrastructure of the goods and services market
economic infrastructure	macroeconomic infrastructure
	production infrastructure
	social infrastructure

2.3. Enterprises in a market economic system

2.4. Economic role of the state

public sector of the economy	economic policy
model of economic circulation with state participation	economic policy mechanism
economic functions of the state	economic policy goals
market imperfections	main directions of economic policy
macroeconomic instability	macroeconomic policy
externalities	microeconomic policy
public goods	administrative and legal methods of regulation
asymmetric information	economic methods of regulation

Law of Diminishing Returns:

Economic agents and interests of business entities

Social production, its essence and goals. Economic circulation. Stages of social production

Labor process

Production process

Industrial relations Productive forces

Main factors of social production and patterns of their development

Production

Factors of production

Simple and extended reproduction, its content, structure and types. Types of economic growth in production

Section II microeconomics Lecture 3. The market and the mechanism of its functioning

Geographically

Brief conclusions

Concept, conditions for occurrence and types of competition. Perfect competition and its essence

Characteristics of types of competition

Monopolistic competition. Oligopoly. Monopoly. Monopoly associations

3.6. Antimonopoly legislation and state regulation of the economy. Market power

Forms of government regulation

Brief conclusions

Lecture 4. Theory of supply and demand

Demand. Demand factors. Law of demand. Elasticity of demand

Offer. Supply factors. Law of proposals. Elasticity of supply

Equilibrium price. Market equilibrium mechanism

The scale of supply, demand and market equilibrium

Labor market. Demand and supply of labor. Wages, their essence, types, forms, systems

Basic forms and systems of wages

Capital market. Fixed and working capital. Interest rate and investment

Structure of production assets of enterprises

Land market. Rent. Land price

Brief conclusions

The essence and main features of the enterprise (firm). Classification of enterprises (firms)

Organizational and legal forms of enterprises. Commercial and non-profit organizations

Legal forms of enterprises

Advantages and disadvantages of an open joint stock company

Small businesses. Enterprise integrations

Legal entities and their registration. Bankruptcy, its causes and consequences

Economic content of costs. Types and cost structure of the enterprise (firm)

Cost and cost classification

1. Material costs:

2. Labor costs:

3. Contributions for social needs:

Revenue and profit. Principles of profit maximization. Effects of scale

Enterprise costs Sales revenue

Brief conclusions

Lecture 5. Health as an economic category. Factors influencing the level of public health and healthcare

5.1 Health as a result of activities in healthcare.

Lecture 5 test questions

Literature

Lecture 6. National economy. Economic growth and development.

6.1. National economy. The circulation of income and expenses in the national economy. National wealth

5) Implementation of macroeconomic stability.

System of national accounts: essence and structure

The cyclical nature of economic development. Business cycle phases

6.7. Aggregate demand. Aggregate demand curve. Non-price factors of aggregate demand

Aggregate supply. Aggregate supply curve. Non-price factors of aggregate supply

Macroeconomic equilibrium of aggregate supply and demand

Brief conclusions

Lecture 7. Inflation and unemployment

7.1. Inflation: essence, types and causes of its occurrence.

7.2. Socio-economic consequences of inflation. Anti-inflationary policy of the state

7.3. Essence, causes and forms of unemployment. Okun's Law

Brief conclusions

7.7. Public finances. The state budget

7.5. Taxes and tax system

7.6. Classification of taxes. Types of taxes and fees in Russia

7.7. Money and its functions.

7.8. Money-credit policy. Credit: essence, functions and types

7.9. Banks and their functions. Banking system

Brief conclusions

Topic No. 8. Population income and social policy

8.1. Personal income: essence, types and principles of distribution

8.2. Income differentiation: essence and reasons

8.3. Social transfers. Social policy of the state

8.4. The essence of the world economy. International division of labor. International economic relations: essence and forms

8.5. World trade. Foreign trade policy

8.6. Currency: essence and types.

Lecture 9. Features of the transition economy of Russia

9.1.Transition economy: essence, patterns, stages

9.2. Economic policy of the state during the transition period in Russia

9.3. Restructuring property relations in a transition economy. Features of Russian privatization

9.4. Contents and characteristics of entrepreneurship. Main features of an entrepreneur

9.5. Business environment and functions of entrepreneurship

9.6. Organizational and legal forms of entrepreneurship in Russia

9.7. Formation of a competitive business environment

9.9. Shadow entrepreneurship in a transition economy

Organized crime

9.10. Economic and legal content of tax offenses

Characteristics of a market economy

Main features of a market economy: the basis of the economy is private ownership of the means of production; diversity of forms of ownership and management; free competition; market pricing mechanism; self-regulation of a market economy; contractual relations between business entities; minimum government intervention in the economy
Main advantages:	Main disadvantages:
1) stimulates high production efficiency; 2) fairly distributes income based on labor results; 3) does not require a large control apparatus, etc.	increases social inequality in society; causes instability in the economy; indifferent to the damage that business can cause to people and nature, etc.

Market economy of free competition has developed in the 18th century, but a significant part of its elements entered the modern market economy.

The main features of a market economy of free competition:

private ownership of economic resources;

market mechanism for regulating the economy based on free competition;

a large number of independently operating sellers and buyers of each product.

Modern market economy (modern capital) Talism) turned out to be the most flexible, it is capable of restructuring, adapt to changing internal and external conditions. Its main features:

variety of forms of ownership;

development of scientific and technological progress;

active influence of the state on the development of the national economy.

Traditional economics is an economic system into which scientific and technological progress penetrates with great difficulty, because conflicts with traditions. It is based on backward technology, widespread manual labor, and a multi-structure economy. All economic problems are solved in accordance with customs and traditions.

Main features of traditional economics:

private ownership of the means of production and personal labor of their owners;

extremely primitive technology associated with the primary processing of natural resources;

communal farming, natural exchange;

predominance of manual labor

Administrative command economy (centrally planned economy) is an economic system in which the main economic decisions are made by the state, which assumes the functions of the organizer of the economic activities of society. All economic and natural resources are owned by the state. An administrative-command economy is characterized by centralized directive planning; enterprises act in accordance with the planned targets communicated to them from the “center” of management.

The main features of the administrative-command economyMiki:

basis - state property;

absoluteization of state ownership of economic and natural resources;

strict centralization in the distribution of economic resources and results of economic activity;

4) significant restrictions or prohibitions on private entrepreneurship.

Positive aspects of administrative-command economics

By concentrating resources, it can ensure the achievement of the most advanced positions in science and technology (the achievements of the USSR in the field of astronautics, nuclear weapons, etc.).

An administrative-command economy is able to ensure economic and social stability. Every person is guaranteed a job, a stable and constantly increasing salary, free education and medical services, people's confidence in the future, etc.

The administrative-command economy proved its vitality in critical periods of human history (war, elimination of devastation, etc.).

Negative aspects of administrative-commandeconomy

Excludes private ownership of economic resources.

It leaves a very narrow framework for free economic initiative and excludes free enterprise.

The state completely controls the production and distribution of products, as a result of which free market relationships between individual enterprises are excluded.

Mixed economy organically combines the advantages of market, administrative-command and even traditional economies and thereby, to a certain extent, eliminates the disadvantages of each of them or mitigates their negative consequences.

Russia was practically the first in the world to apply the experience of an administrative-command economy in the form of state socialism. At the present stage, Russia is beginning to use the main elements of a mixed economy.

Mixed economy- a type of modern socio-economic system that is emerging in developed Western countries and some developing countries at the stage of transition to a post-industrial society. A mixed economy is multi-structured in nature, its basis is private property interacting with state property (20-25%). On the basis of various forms of ownership, various types of economy and entrepreneurship operate (large, medium, small and individual entrepreneurship; state and municipal enterprises (organizations, institutions)). A mixed economy" is a market system with its inherent social orientation of the economy and society as a whole. The interests of the individual with its multifaceted needs are put at the center of the country's socio-economic development. A mixed economy has its own characteristics in different countries and at different stages of development Thus, the mixed economy in the United States is characterized by the fact that government regulation here is represented to a much lesser extent than in other countries, since the size of state ownership is small. The main position in the US economy is occupied by private capital, the development of which is stimulated and regulated by government agencies , legal norms, tax system. Therefore, mixed enterprises are less common here than in Europe. Nevertheless, a certain form of public-private entrepreneurship has developed in the United States through a system of government laws.

Each economic system is characterized by its own national models of economic organization. Let's consider some of the most famous national models of economic systems.

American model built on a system of encouragement, entrepreneurial activity, development of education and culture, enrichment of the most active part of the population. Low-income segments of the population are provided with various benefits and allowances to maintain a minimum standard of living. This model is based on a high level of labor productivity and mass orientation towards achieving personal success. The problem of social equality does not arise here at all.

Swedish model It is distinguished by a strong social orientation, aimed at reducing wealth inequality through the redistribution of national income in favor of the least affluent segments of the population. This model means that the production function falls on private enterprises operating on a competitive market basis, and the function of ensuring a high standard of living (including employment, education, social insurance) and many elements of infrastructure (transport, R&D) falls on the state.

The main thing for the Swedish model is a social orientation due to high taxation (more than 50% of GNP). The advantage of the Swedish model is the combination of relatively high rates of economic growth with a high level of full employment and ensuring the well-being of the population. The country has kept unemployment to a minimum, differences in incomes of the population are small, and the level of social security for citizens is high.

Japanese model characterized by some lag in the standard of living of the population (including the level of wages) from the growth of labor productivity. Due to this, they achieve a reduction in production costs and a sharp increase in their competitiveness in the world market. Such a model is possible only with an exceptionally high development of national self-awareness, the priority of the interests of society to the detriment of the interests of a particular person, and the willingness of the population to make certain sacrifices for the sake of the country’s prosperity. Another feature of the Japanese development model is associated with the active role of the state in modernizing the economy.

The Japanese economic model is characterized by advanced planning and coordination between the government and the private sector. Economic planning of the state is advisory in nature. Plans are government programs that orient and mobilize individual parts of the economy to accomplish national goals. The Japanese model is characterized by preserving its traditions and at the same time actively borrowing from other countries everything that is needed for the development of the country.

Russian model of transition economy. After the long dominance of the administrative-command system in the Russian economy in the late 1980s - early 1990s. the transition to market relations began. The main task of the Russian model of a transition economy is the formation of an effective market economy with a social orientation.

The conditions for the transition to a market economy have not developedfavorable for Russia. Among them:

high degree of nationalization of the economy;

the almost complete absence of a legal private sector with an increase in the shadow economy;

the long existence of a non-market economy, which weakened the economic initiative of the majority of the population;

the distorted structure of the National Economy, where the military-industrial complex played the leading role, and the role of other sectors of the national economy was reduced;

uncompetitiveness of industrial and agricultural sectors.

Basic conditions for the formation of a market economyin Russia:

development of private entrepreneurship based on private property;

creating a competitive environment for all business entities;

an effective state that provides reliable protection of property rights and creates conditions for effective growth;

Every society, no matter how rich or poor it is, grapples with the three fundamental questions of economics: what goods and services need to be produced, how, and for whom. These three fundamental questions of economics are decisive (Figure 1.1).

Which of the possible goods and services should beproduced in a given area and at a given time ?

At what combination of production resources,What technology should be used to produce the selected options?goods and services ?

Who will buy the selected goods and services,pay for them while benefiting from them? How should gross income be distributed?society from the production of these goods and services? For whom?

Basic economic issues

What goods and services must be produced and in what manner?how many? An individual can provide himself with the necessary goods and services in various ways: produce them himself, exchange them for other goods, or receive them as a gift. Society as a whole cannot have everything immediately. Because of this, it must decide what it would like to have immediately, what it could wait to get, and what it could refuse altogether. What needs to be produced at the moment: ice cream or shirts? A small number of expensive quality shirts or a lot of cheap ones? Is it necessary to produce fewer consumer goods or is it necessary to produce more industrial goods (machines, machines, equipment, etc.), which will increase production and consumption in the future?

Sometimes the choice can be quite difficult. There are underdeveloped countries that are so poor that the efforts of most of the workforce are spent just to feed and clothe the population. In such countries, in order to raise the living standards of the population, it is necessary to increase production volumes, but this requires the restructuring of the national economy and the modernization of production.

How should goods and services be produced? There are different options for the production of the entire set of goods, as well as each economic good separately. By whom, from what resources, using what technology should they be produced? Through what organization of production? There is far more than one option for building a specific house, school, college, or car. The building can be multi-story or one-story; the car can be assembled on a conveyor belt or manually. Some buildings are built by private individuals, others by the state. The decision to produce cars in one country is made by a government agency, in another by private firms.

Who should the product be made for? Who cantake advantage of goods and services producedin the country? Since the quantity of goods and services produced is limited, the problem of their distribution arises. To satisfy all needs, it is necessary to understand the mechanism of product distribution. Who should use and benefit from these products and services? Should all members of society receive the same share or not? Should priority be given to intelligence or physical strength? Will the sick and old people have enough to eat or will they be abandoned to their fate? Solutions to these problems determine the goals of society and the incentives for its development.

Basic economic problems are solved differently in different socio-economic systems. For example, in a market economy, all answers to basic economic questions (what, how, for whom) are determined by the market: demand, supply, price, profit, competition.

“What” is decided by effective demand, the vote of money. The consumer himself decides what he is willing to pay money for. The manufacturer himself will strive to satisfy the desires of the consumer.

The “how” is decided by the manufacturer, who seeks to make more profit. Since setting prices does not depend solely on him, to achieve his goal in a competitive environment, the manufacturer must produce and sell as many goods as possible and at a lower price than his competitors.

“For whom” is decided in favor of different consumer groups, taking into account their income.

The economy of any state is a system of complex interconnected processes, institutions and management decisions, characterized by certain characteristics and features that determine the model of the economic system.

Market economy - definition of the term

A market model is an economic model based on freedom of entrepreneurial activity, private property rights, market construction of prices by finding the intersection of supply and demand curves, that is, the purpose of functioning of subjects of a market economy is to obtain benefits, while the risks of the activity are borne and covered by the subject independently.

The market offers many options for products, works and services for the consumer, who is free in his choice. For the manufacturer, the market economy model offers conditions for competition with other manufacturers of similar products. Production costs are borne by the producer himself, but the producer also sets the price based on his judgment. The manufacturer also distributes the funds received (income) independently. In the market model of the economy, the role of the state as a regulator is very limited.

Since the choice of goods, works or services is wide for the consumer, competitive relations arise between producers - fundamental to the market model of the economy. Also, the basis will be the right of ownership, guaranteeing freedom from interference by outsiders.

Market economy - main features and characteristics

The fundamental characteristics of the model of this type of economy are:

• The right of private property as a guarantee of non-interference by the state and other persons.
• The right to carry out entrepreneurial activities - every subject has it, and he can independently choose and engage in any type of activity, while his costs are charged to him as expenses and the subject independently distributes the income received.
• The choice of the consumer and his demand will be the decisive factor for the production of goods or the provision of services.
• The price is formed by finding the intersection points of the demand and supply curves in the market. Regulation of product prices by the state is not provided; in a market economy, the market regulates itself independently.
• With the free choice of the buyer - what to buy, as well as with the freedom to choose the type of activity of the manufacturer, competitive relations arise, which are a distinctive feature of the market model of the economy.
• The state does not set prices for products and services, and is not the main regulator in a market economy.

Market economy - development indicators

1. Growth within 2-3%.
2. Low inflation and inflation expectations.
3. The state budget deficit is within 9%.
4. Low unemployment rate (up to 6%).
5. Positive balance of payments.

The Russian economy previously existed within the framework of an administrative model, characterized by the centralization of all processes, the presence of a powerful regulator in the form of government bodies, price setting at a certain level by the regulator, and a planning system. Since the collapse of the USSR, Russia has adopted a policy of building a market-type economic model to bring the economy out of recession.

The fundamental change in the economic model of development could not but affect such areas as politics, government regulation, and the social sphere.

In addition to the protracted recession in the economy, the prerequisites for the transition to a market system were:

• the presence of strict government regulation of the economy has led to the formation of a large share of the shadow sector of the economy;
• low economic activity of economic entities due to total regulation of all areas of activity;
• the formation of an incorrect structure of economic sectors, not focused on consumer services, but on service and production in the military industry;
• the lack of conditions for free competition, monopolistic phenomena in many industries have led to the uncompetitiveness of manufactured goods;
• the combination of these factors led to a crisis in the economic system, which, in turn, affected the political and social system.

Measures for the transition to a market economic model were:

1. Privatization of property previously exclusively owned by the state.
2. The emergence of the most stable segment of the population - the middle class.
3. Formation of connections with the outside world at the level of politics and economics.
4. Creation of organizations of joint ownership - between the public and private sectors, with the attraction of foreign economic investments.
5. Formation of sustainable international relations.

Market economy - ways of transition

To finalize the market model, you should decide on a strategy for transition to it:

• Gradual, consistent implementation of reforms and changes, in which institutions are replaced. It is characterized by a gradual weakening of regulation of pricing, the economy, and the social sphere by the state.
• Shock therapy is when changes do not occur gradually, and the economy is allowed to float freely, with minimal government regulation. The market, as the most cost-effective instrument, will regulate itself. State expenses are sharply reduced, and pricing is set using the market method.

A market economy has the following features:

· private property;
Various types of forms of private property make it possible to ensure the economic independence of economic entities.

· free enterprise;
Economic freedom gives the manufacturer the opportunity to choose types and forms of activity, and the consumer the opportunity to buy any product. A market economy is characterized by consumer sovereignty - the consumer decides what should be produced.

· pricing based on the mechanism of supply and demand;
Thus, the market realizes self-regulating function. Provides a rationally efficient way of production. Prices in a market system are not set by anyone, but are the result of the interaction of supply and demand.

· competition;
Competition generated by free enterprise and freedom of choice forces producers to produce exactly those goods that customers need, and to produce them in the most efficient way.

· limited role of the state. The state only monitors the economic responsibility of subjects of market relations - it forces enterprises to answer for their obligations with the property they own.

A set of macroeconomic indicators for a healthy market-type economic system:

· High GDP growth rate (GNP), within 2-3% per year;

· Low, no higher than 4-5% annual inflation growth;

· The state budget deficit is not higher than 9.5% of GDP;

· The unemployment rate is not higher than 4-6% of the economically active population of the country;

· Non-negative balance of payments of the country.
The core of the market system is the market mechanism, the interaction of elements of which was discussed above. There is a lot of evidence that this is the most effective way to regulate economic processes today.

Main elements of market infrastructure: financial market; market of production factors; market of goods and consumer services.

All these elements are interconnected, and if they are normally balanced, then the economy functions without failures.

Modern market- this is a complex system of relationships between producers and consumers, sellers and buyers, their economic relations, including direct multi-link contacts with the participation of intermediaries.

Its advantages include:

1. economic democracy - freedom of choice and action of consumers and buyers (they are independent in making their decisions and concluding transactions);

2. efficient resource allocation;

3. flexibility, high adaptability to changing conditions, the ability to meet diverse needs, improve the quality of goods and services, and quickly adjust disequilibrium.

4. the ability to satisfy various needs, improve the quality of goods and services.

5. initiating the implementation of the achievements of developing scientific and technological progress.

6. the ability to function in uncomfortable conditions with limited information.

Imperfections, or, as they are often called, market failures, manifest themselves in:

1. The market is not able to resist monopolistic tendencies. In market conditions, monopolistic structures inevitably arise that limit freedom of competition. When the market environment is uncontrolled, monopolies are formed and strengthened. Unjustified privileges are created for a limited number of market participants. To maintain extremely high prices, monopolists artificially reduce production. This makes it necessary to regulate prices, say, for the products of raw material monopolies, electricity, and transport.

2. The market is neither interested nor capable of producing public goods (“public goods”). These goods are either not produced by the market at all or are supplied to them in insufficient quantities. The peculiarity of public goods is that everyone can use them, but they do not have to pay for them. In addition, their use cannot usually be limited.

3. The market mechanism is not suitable for eliminating external (side) effects (externalities). Economic activity in a market environment affects the interests of not only its direct participants, but also other people. Its consequences are often negative. As social wealth increases, the problem of externalities becomes more acute. The increase in the number of cars in use is accompanied by air pollution. The market itself is unable to eliminate or compensate for the damage caused by externalities. Agreement between interested parties without external interference can be achieved in rare cases where the negative effect is negligible. In practice, when serious problems arise, government intervention is necessary. It introduces strict standards and restrictions, uses a system of fines, and defines boundaries that participants in economic activities do not have the right to cross.

4. The market does not have the ability to provide social guarantees and neutralize excessive differentiation in income distribution. The market by its nature ignores social and ethical criteria, i.e. fairness in the distribution of resources and income. It does not provide stable employment for the working population. Everyone must independently take care of their place and society, which inevitably leads to social stratification and increases social tension.

5. The modern market is fraught with the danger of unemployment. The reality of unemployment in a market economy is confirmed by many historical facts. There is no doubt that it arose in mass form precisely in countries with developed commodity production, primarily in England. Moreover, the greatest value of relative overpopulation is closely related to economic crises.

6. The market mechanism generates incomplete and asymmetric information. Only in a fully competitive economy do all market participants have sufficiently comprehensive information about prices and prospects for production development. But competition itself forces firms to hide real data about the state of affairs. Information costs money, and economic agents - producers and consumers - possess it to varying degrees.

7. The functioning of market relations is associated with significant moral costs. In modern Russia, the spread of market relations is accompanied by a sharp decline in morality. Vagrancy, prostitution, drug addiction, child neglect, and contract killings have become commonplace. Thus, the market (even in its developed, civilized form) cannot be understood as something unambiguously positive, as some kind of miracle cure for economic and social disasters. On the contrary, it is a very complex, contradictory, one might say, double-edged phenomenon.

Integrating function consists in connecting the sphere of production (producers) and the sphere of consumption (consumers), as well as intermediary traders, including them in the general process of active exchange of labor products and services. Without a market, production cannot serve consumption, and the consumer cannot satisfy his needs. The market contributes to the deepening of the social division of labor and the growth of integration processes in the economy. This function is relevant now for Russia and can serve as an important argument in favor of concluding an economic agreement between the republics and regions to create conditions for the functioning of a single all-Russian market.

Regulatory function assumes the impact of the market on all spheres of the economy, ensures coordination of production and consumption in the assortment structure, balance of supply and demand in price, volume and structure, proportionality in production and exchange between regions and spheres of the national economy. Constant price fluctuations not only inform about the state of affairs, but also regulate economic activity. A rising price is a signal to expand production; the price falls - a signal to reduce it. Information provided by the market forces manufacturers to reduce costs and improve product quality. Figuratively speaking, there is a regulatory “invisible hand” in the market, about which Adam Smith wrote: “The entrepreneur has only his own interest in mind, pursues his own benefit, and in this case he is guided by an invisible hand to a goal that was not at all part of his intentions.” . By pursuing his own interests he often serves the interests of society more effectively than when he consciously seeks to serve them.”

Stimulating function consists of encouraging manufacturers to create new products, necessary goods at the lowest cost and obtaining sufficient profit; in stimulating scientific and technological progress and, on its basis, intensifying production and the efficiency of functioning of the entire economy. The market's stimulating function is very important for economic development: without market pressure, enterprise employees will elect not the best specialists as directors, but the most popular and less demanding people. As a result, there is a decline in production volumes and the level of individual material well-being.

Pricing (equivalent) function- this is the establishment of value equivalents for the exchange of products. At the same time, the market compares individual labor costs for the production of goods with a social standard, i.e. compares costs and results, reveals the value of a product by determining not only the amount of labor expended, but also its benefits. Unlike the administrative-command system in a market economy, this assessment occurs not before the exchange, but during it. The market price is a kind of result, a balance between the costs of producers and the utility (value) of a given good for consumers.

Control function The market plays the role of the main controller of the final results of production. The market reveals to what extent not only the quantity, but also the quality of goods and services meets the needs of buyers.

Intermediary function. The market acts as an intermediary between producers and consumers, allowing them to find the most profitable purchase and sale options. In a developed market economy, the consumer has the opportunity to choose the optimal supplier. The seller, from his position, strives to find and conclude a deal with the buyer who suits him best.

Information function. Constantly changing prices for products and resources provide objective information about the required quantity, range, and quality of goods supplied to markets. The price that emerges in each of the markets contains a wealth of information necessary for all participants in economic activity. High prices indicate insufficient supply, low prices indicate an excess of goods compared to effective demand. Spontaneously occurring operations turn the market into a giant computer, collecting and processing colossal volumes of point-by-point information, producing generalized data on the entire economic space it covers. Market-concentrated information allows each participant in economic activity to compare their own position with market conditions, adapting their calculations to market demands.

Economy function involves reducing distribution costs in the sphere of consumption (costs of buyers for the purchase of goods) and proportionality of population demand with wages.

Function of realizing the interests of market subjects ensures the interconnection of these interests according to the principle formulated by A. Smith: “Give me what I need, and you will get what you need...”. The economic interest of sellers is to obtain a large income, and the buyer - to satisfy needs at the lowest cost. The combination of these interests implies the equivalence of a market transaction.

Market structure – this is the internal structure of individual market elements; a set of interrelated quantitative and qualitative relationships between individual elements of the market, characterizing its stable certainty and ensuring the functioning of the market system as a whole.

The market system as a whole is characterized by a rich and complex structure, which is characterized by using a variety of criteria that allow the market system to be divided.

Market structure is classified according to various criteria, the most important of which are the following.

1. By economic purpose - market for goods and services, means of production, labor, investments, securities, financial.

2. By geographical location - local, regional, national and global.

3. By degree of restriction of competition- monopolistic, oligopolistic, free, mixed.

4. By industries- automobile, grain, etc.

5. By nature of sales- wholesale and retail.

6. By the specifics of the functioning of the market mechanism and the completeness of the implementation of its regulatory functions: undeveloped, free (perfect), adjustable, deformed .

Undeveloped market characterized by the fact that market relations in it are random; exchange of goods and services - commodity (barter); the functions of the market mechanism are reduced to differentiation of members of society and the creation of a system of incentives.

Free (perfect) market assumes an unlimited number of participants in market relations, free competition between them; the ability to carry out any economic activity; absolute mobility of factors of production; unlimited freedom of movement of capital; each participant has complete information about the market; production of homogeneous goods; inability to influence the decisions of competitors using non-economic methods; inability to influence prices. In a free market, the market mechanism acts as the only regulator of economic and social processes.

In conditions regulated market Along with the market mechanism, regulatory functions are performed by the state. A regulated market is the result of the humanization of society. The state seeks to soften the blows of the market on the interests of individual members of society, but in such a way as to preserve the motivation for creativity, initiative work and risk in economic activity. At the same time, unjustified government intervention in market relations leads to their deformation.

Distorted market exists in a command-administrative economic system. The most important features of market deformation are: the absence of diverse forms of management based on different forms of ownership; natural distribution of factors of production; monopoly of the manufacturer and trader; imbalance of supply and demand; hidden inflation; the flourishing of the shadow economy, etc. Regulation of the economy in a deformed market is carried out by the state through centralized, directive planning.

The market can exist only when its individual parts perform all the necessary functions that ensure the process of social reproduction. That's why the functional structure necessarily presupposes the presence of its three main segments: market of goods and services, capital market and labor market.

Each of these markets has its own specific structure. So, market of goods and services breaks up into many specialized markets (shoe market, food market, tourism services, etc.); capital market- on the money capital market and the securities market; labor market- to the market for skilled and unskilled labor, markets for individual specialties.

The modern market is impossible without developed infrastructure, i.e. auxiliary industries and organizations.

Market infrastructure – a set of institutions, systems, agencies, services, enterprises that serve the market and ensure its normal functioning.

The market infrastructure performs the following functions:

facilitates the purchase or sale of goods for market participants;

increases the efficiency and efficiency of the work of market entities;

organizes the formalization of market relations;

facilitates economic and legal control.

It is customary to distinguish infrastructure of three markets: commodity, financial and labor markets.

Commodity market infrastructure represented by commodity exchanges, wholesale and retail trade enterprises, auctions, fairs, non-exchange intermediary firms.

Financial market infrastructure includes stock and currency exchanges, banks, insurance companies and funds.

Labor market infrastructure includes labor exchanges, employment and retraining services, regulation of labor migration, etc.

Thus, the main elements of classical market infrastructure are: trading network, exchanges and banks.