Question

What are the prerequisites for A market economy to function efficiently.

Answer 1

Market efficiency is acquired when demand and supply forces equate. That is, the quantity demanded is equal to quantity supplied.In this situation, the resources are allocated efficiently.

Market economy is a system where laws of supply and demand influence the production of goods and services.

Prerequisites for a market economy to function efficiently----------

* Large number of rational profit maximising sellers/ producers

* Market competition

* Perfect knowledge of producers and consumers

* Independent movement of price without outer influence

* No impact of taxes on price or quantity

* No price control by govt--- price ceiling or price floor

* Market prices are efficient not sticky

* Each investor can borrow or lend at same rate of interest

* Individual producer can't affect market price

* Investors actively participate in the market mechanism

* Free flow of information

*No individual investor can influence the market