A market economy is, strictly speaking, an economy in which prices of things are freely set based on the laws

of supply and demand, unfettered by interference from a government or other outside body. A market economy is, at its most basic, an economy run entirely by the market itself. In the real world, however, there is no such thing as a truly unfettered market economy, and so the term is used to describe economies which are largely dictated by market forces. As a result, whether or not a given economy is actually a market economy can be open to some debate. A market economy can be contrasted by a command economy, where the prices for things are set by a force outside the market, such as a government. Strict Communist economies, for example, do not allow the market to dictate prices, making them command economies. In recent years, however, many Communist states have begun incorporating aspects of a market economy into their systems. China is a good example of this model, often called market socialism or the socialist market economy. Under market socialism, many key industries are actually owned and operated by the government rather than private industry, but the government allows the prices of goods and services to fluctuate based on the market, rather than using their monopoly to set the prices as they choose. Ads by Google Car Wax & Polish Factory Gmet Quality Repack Brand Your Own Product Line Car Wash Products Private Labeled www.jbchemicalusa.com European Quality Company in China QC,

Inspections, Audit, Lab Testing www.gmetqc.com Consultancy and research in the field of energy Ea Energy and climate change Analyses ea-energianalyse.dk. GDP at a current US$, GDP at PPP GDP GDP by Country growth rates Data for 1990-2011 Statistics www.knoema.com Learn to master Market Profile and real-time Market Profile Order Flow Trading Trading www.l2st.co.uk Control A related type of market economy is known as Anarchocapitalism, in which all government interference in the market is removed entirely. Under Anarcho-capitalism all involvement in larger projects, such as defense spending or infrastructure, is on a voluntary basis. The government does not regulate any sales or ownership in any way, shape, or form, and the market is regulated only to the extent that individuals choose to limit their own actions. This has a great deal in common with the ideal, strictly laissez-faire market economy, but is markedly different in its rejection of all apparatuses of the state as a necessary precondition to a truly free market. Most economies in the West are defined as mixed economies, incorporating some elements of a socialist command economy and some elements of a market economy. These economies can be seen as falling along a spectrum, with varying degrees of market freedom. The United States, for example, can be seen as falling fairly far on the side of a true market economy, with steady deregulation of industries and privatization of even once

government-owned industries. In contrast, many nations in Western Europe can be seen as falling more on the socialized end of the spectrum, with fairly substantial regulation of industries, and government ownership of some key businesses, such as prisons, water systems, telecommunications systems, health-care systems, and others. The idea of the market economy is intricately connected with larger political ideals as well. Many theorists, most notably Milton Friedman, one of the great proponents of the market economy, have posited that a free-market economy is a necessary pre-condition for a truly free political system. They hold that the degree to which a nation embraces a free market correlates over time to the degree to which that nation will provide civil and political freedoms to its citizens, with command economies eventually stripping away individual rights.

Definition of 'Market Economy'

An economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's citizens and businesses and there is little government intervention or central planning. This is the opposite of a centrally planned

economy, in which government decisions drive most aspects of a country's economic activity.

Investopedia explains 'Market Economy' Market economies work on the assumption that market forces, such as supply and demand, are the best determinants of what is right for a nation's well-being. These economies rarely engage in government interventions such as price fixing, license quotas and industry subsidizations. While most developed nations today could be classified as having mixed economies, they are often said to have market economies because they allow market forces to drive most of their activities, typically engaging in government intervention only to the extent that it is needed to provide stability. Although the market economy is clearly the system of choice in today's global marketplace, there is significant debate regarding the amount of government intervention considered optimal for efficient economic operations.
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Market economy
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A market economy is an economy in which decisions regarding investment, production and distribution are based on supply and demand[1] and the prices of goods and services are determined in a free price system.[2] This contrasted with a planned economy,

where investment and production decisions are embodied in a plan of production. Market economies can range from hypothetical laissez-faire and Free market variants to regulated markets and interventionist variants. Most existing market economies include a degree of economic planning or statedirected activity and are thus classified as mixed economies. In the real world, market economies do not exist in pure form, as societies and governments regulate them to varying degrees rather than allow full self-regulation by market forces.[3][4] The term free-market economy is sometimes used synonymously with market economy,[5] but, as Ludwig Erhard once pointed out, this does not preclude an economy from providing various social welfare programs such as unemployment benefits, as in the case of the social market economy. There exists both socialist and capitalist models of market economies. There are many variations of market socialism ranging from the cooperative model, where employee-owned enterprises based on self-management are coordinated by markets and output of final goods and services is based on market allocation,[6] to those based on public ownership of the means of production.[7] The term used by itself can be somewhat misleading. For example, the United States constitutes a mixed economy (substantial market regulation, agricultural subsidies, extensive government-funded research and development, Medicare/Medicaid), yet at the same time it is foundationally rooted in a market economy. Different perspectives exist as to how strong a role the government should have in both guiding the market economy and addressing the inequalities the market

produces. This is evidenced by the current lack of consensus on issues such as central banking and welfare.

Important Role of Financial System in the Economy

Category: Finance Article

The financial sector provides six major functions that are important both at the firm level and at the level of the economy as a whole. 1. Providing payment services. It is inconvenient, inefficient, and risky to carry around enough cash to pay for purchased goods and services. Financial institutions provide an efficient alternative. The most obvious examples are personal and commercial checking and check-clearing and credit and debit card services; each are growing in importance, in the modern sectors at least, of even low-income countries. 2. Matching savers and investors. Although many people save, such as for retirement, and many have investment projects, such as building a factory or expanding the inventory carried by a family micro enterprise, it would be only by the wildest of coincidences that each investor saved exactly as much as needed to finance a given project. Therefore, it is important that savers

andinvestors somehow meet and agree on terms for loans or other forms of finance. This can occur without financial institutions; even in highly developed markets, many new entrepreneurs obtain a significant fraction of their initial funds from family and friends. However, the presence of banks, and later venture capitalists or stockmarkets, can greatly facilitate matching in an efficient manner. Small savers simply deposit their savings and let the bank decide where to invest them. 3. Generating and distributing information. One does not always think of it this way, but from a society wide viewpoint, one of the most important functions of the financial system is to generate and distribute information. Stock and bond prices in the daily newspapers of developing countries (and increasingly on the Internet as well) are a familiar example; these prices represent the average judgment of thousands, if not millions, ofinvestors , based on the information they have available about these and all other investments. Banks also collect information about the firms that borrow from them; the resulting information is one of the most important components of the "capital" of a bank, although it is often unrecognized as such. In these regards, it has been said that financialmarkets represent the "brain" of the economic system. 4. Allocating credit efficiently. Channeling investment funds to uses yielding the highest rate of return allows increases in specialization and the division of labor, which have been recognized since the time of Adam Smith as a key to the wealth of nations. 5. Pricing, pooling, and trading risks. Insurance markets provide

protection against risk, but so does the diversification possible in stock markets or in banks' loan syndications. 6. Increasing asset liquidity. Some investments are very longlived; in some cases - a hydroelectric plant, for example - such investments may last a century or more. Sooner or later,investors in such plants are likely to want to sell them. In some cases, it can be quite difficult to find a buyer at the time one wishes to sell - at retirement, for instance. Financial development increases liquidity by making it easier to sell, for example, on the stock market or to a syndicate of banks or insurance companies.

Accumulating Money
To have wealth, in the financial sense, we have to accumulate money. A pretty obvious statement but how many of us actually try to accumulate money? Probably very few. And if we do, have we a set proper plan? The secret of accumulating money is to do so on a regular basis, no matter what our income may be. By saving money every month, and investing it wisely, we can all build a financial base. The compounding effect of money invested can be quite awesome if we leave it alone, other than to ensure that we are getting the best interest rate possible.

If we look at an example. If 100 is invested (or $100) every month at 12 per cent, for thirty years, the investment will be worth /$308,097. In 50 years it will total more than /$3 million. This is purely an illustration showing how money compounding over a period of time can build a sizeable sum. To some people saving 100 a month would be no problem. They could probably save much more. To others 100 is a huge sum to save, a few pounds may be all that is possible. No matter what your current situation it is possible to accumulate money. The following is a simple plan that has worked for many people. The Money Accumulation Plan Decide what you can afford to save out of your income every week or month. This has to be money that you will not touch, so the figure has to be realistic and is completely dependent on your own circumstances. It may be only a few pounds, or something much more substantial. What is essential is that the figure is achievable each week or month starting right now. The next step is to work out the amount that you are going to save as a percentage of your current income. This is your starting point and will be different for everyone. As a simple example: If your income is 800 per month and you can save 35 your starting percentage would be 4.37%. This is your starting percentage. You need to make a pact with yourself that from now on, if we take the example, you will save a minimum of 4.37% of all your future income. This percentage is an individual thing. There is no right or wrong figure, it could be 2% or 20%. This doesnt matter. It is the principle that is important i.e. to save a regular percentage amount from now on. As you will no doubt realise we have gone one step better than the original illustration of someone saving 100 per month indefinitely. What we are doing is saving a fluctuating amount. As our situation improves, and our income increases, we will be saving a larger sum and so will accumulate money much more quickly. Our starting percentage is a minimum figure. If we are doing well in the future the percentage can be increased, but at no time should it be reduced below the figure that you have agreed with yourself. This is why it is worth taking time and putting some thought into the initial amount that you are going to save. The percentage figure is applicable to all money that you earn, or comes to you, from whatever source. If you get a windfall from a prize draw, or are left some money in a will, then still a minimum of 4.37%, in the case of our example, should be saved - no matter what you intend to do with the remainder. Your savings used to accumulate money should be untouchable. Put other money aside, if possible,

for emergencies but dont touch this special accumulating money. No matter what sum you start off with it must be made to earn as much interest as possible. Dont leave it under the mattress! Lock it away in a Bank Savings Account, Building Society, Investment Scheme or whatever you think is most appropriate. It must, however, keep earning compound interest. You should remain continuously aware of the rate of interest that your money is making and switch funds about if necessary. Even an extra half percent can make a big difference long term. It doesnt matter if you only have a small amount initially, treat it like it was several million. Get into the habit of expecting the highest return on your money. Read the financial pages, get to know something about simple investments. One day soon, when you are wealthy, this will be useful information. The amount of money that you will be able to accumulate is based on three things: 1. The amount you save / invest each month. 2. The percentage rate at which your money is invested. 3. The length of time that you allow your money to compound. These three things can help you accumulate money. But no matter what your ultimate aim, as with all things in life, actually starting and carrying out some sort of plan is what really matters.

SAVINGS MOBILIZATION
by Phil Bartle, PhD
Reference Document

Introduction:

In the "Handbook for Generating Wealth," you saw that wealth can be consumed, stored (saved) or invested. In the creation or generation of wealth, the key is a method to transform "savings" into "investment." This document looks at the nature of saving,

and how you, as mobilizer, can encourage and guide it among your target group (beneficiaries). "Savings" are cash or physical products set aside for future use. People in rural and other low-income communities, although poor, can save when they are guided and encouraged. In rural communities, savings are made through traditional credit rotation groups, or purchase of domestic animals (goats, pigs, chickens or cows). Every micro-enterprise needs injection of capital or funds which may be owner's money or a loan. When a loan is used, it is someone else who has done the saving. Micro enterprises, like other businesses, convert savings (of the owners and of others) into investment, in the generation of wealth. Why Save?
People save for different reasons (economic, social, political, cultural). People's ability to save depends on:

Earnings; Consumption habits; Socio-cultural obligations; Personal ambitions; and Surrounding conditions.

People will want to save for some of the following reasons:

to start a business enterprise or expand on an existing one; to provide for a growing family's health, education (school fees) and housing (build a house); to buy new equipment; to provide for old age; to provide for unforeseeable circumstances (eg drought leading to crop failure); to buy physical assets like land; and to develop a relationship with lending institutions that will provide credit.

The Nature of Savings: In low-income communities, the ability to save is low and often is in cash or kind. Saving in cash is cheap and convenient.
Savings in kind (ie keeping preserved items in storage) include:

grains (maize, millet, simsim [sesame], beans, groundnuts); livestock (cows, goats, sheep, chicken); and processed food (millet flour, smoked fish, smoked beef.).

Where to Save: In low-income communities, most people prefer to save in undisclosed places. This may be in the roof, pot, walls, underground or under a bed. Savings cannot be converted to investment when it is under a bed. Your job as mobilizer is to encourage them to save in a credit rotation group (one that has been modified from traditional patterns so as to contribute to the creation and development of micro enterprise activities and therefore the creation of wealth and reduction of poverty). Mobilization of Savings: No matter how poor a person may seem s/he should be persuaded and encouraged to save as the income rises for reasons earlier mentioned. Members should periodically (weekly, monthly, on the periodic market day) save accordingly with their groups.
Group savings can effectively be mobilized using the following simple procedure:

The group must determine the amount to be saved by each member; A specific day should be agreed for payment of savings to ensure regular savings; Each group member should be given a savings book into which amounts saved are recorded by group officials; The group should open a groups savings account into which all members' savings will be deposited; The group should keep a general savings register to record monies collected from each member before sending to the bank. Information in the register should agree with what is in the individual savings books; All savings should be collected at the group's meeting days to ensure accountability and transparency; and The total amount collected at a meeting should be announced to all present and recorded into their minutes book and then handed over to the treasurer to be paid to the bank.

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