Question

What key institutional arrangements are necessary preconditions to the operation of a well-functioning market economy?

Answer 1

For a proper functioning of the market economy, following institutional arrangements are necessary.

1. Develop of a a robust market where market forces will operate and it will be under the observation of regulatory bodies such as Department of Justice and Federal Trade Commission.

2. Presence of well developed clearing agencies to prevent the scope of default and other risk so that chaos is prevented.

3. Presence of tax collection agencies that will be responsible to collect the tax and fix it as well for the trade taking place between the market forces.

4. Laws and regulations to be in place so that free, fair competition in the market is promoted.

5. Grievance handing agencies and institutions should be in place so that any aggrieved party can come and resolve the dispute.