The market mechanism is a set of interdependent methods and levers of economic impact on production, exchange, distribution and consumption in the system of market laws and commodity-money relations.
Famous American economists Samuelson and Nordhaus define the market mechanism for regulating the economy as a form of economic organization, when individual consumers and producers interact through the market to solve common economic problems.
The Polish economist Balcerowicz sees the market mechanism as a way to maintain the balance necessary between supply and demand in the horizontal direction. In his opinion, only economic systems in which the market mechanism is the main way of distribution and coordination of goods can be called a market system.
A market that functions freely in reality carries elements of the free. It has natural and unnatural monopolistic formations that seek to maintain high prices and therefore interfere with the free movement of resources, which leads to limited access to markets.
Distortion of market processes can occur under the influence of inflation, the wrong state policy in the field of economics, miscalculations of entrepreneurs, lack of commercial awareness and other reasons.
The development of distortions in this direction may continue until the start of the market mechanism. In this case, he acts as the limit. Under his influence, despite all the distortions and deformations, prices will change due to the influence of supply and demand on them, and investment flows, the movement of resources will continue to focus on fluctuations in demand. Other links of the market mechanism remain intact, which preserves the viability of the market.
The market mechanism (market economy) functions due to the presence in this system of important constituent elements, which in general make up the market mechanism. These critical elements include, above all, manufacturers and consumers. The interaction between them is established as an exchange of performance. Producers act as suppliers of a new product, consumers act as buyers of it. Consumption is a logical continuation of the production process in which the goods are processed by users.
The next element is economic isolation, due to private ownership or mixed ownership. The third element is prices. This is an essential element, since it is prices that reflect the essence of the mutual development of supply and demand in the market. The fourth element is supply and demand. They, like prices, are the main elements of the market, providing a link between consumers of goods and their producers. The fifth element is competition. It maximizes profits and helps to expand production.
A competitive market mechanism is a way of interaction between subjects of market relations and a mechanism for the free regulation of its proportions. The economist A. Smith called competition “the invisible hand” of the market. The main function of competition is to determine the magnitude of economic regulators, such as price, interest rate , rate of return, and others.
Competition is the freedom of participation of economic units in any economic sector. Such freedom is necessary to adapt the economy to changes in technology, the supply of resources or tastes of consumers. The main advantage of the market is that its production efficiency is constantly stimulated. The object of competition is price and production costs, design and product quality. Competition is characterized by the ability to develop scientific and technological progress, respond to changes in demand, equalize profit margins and wage levels in the sectors of the national economy.