markaðshagfræði

Markaðshagfræði is the Icelandic term for market economy. It is an economic system where economic decisions regarding investment, production, and distribution are guided by the price signals created by the forces of supply and demand. In a market economy, individuals and private firms make most of these decisions, rather than the government or a central planning authority.

The key characteristics of a market economy include private ownership of the means of production, freedom of enterprise and choice, the self-interest of participants, competition, and a system of markets and prices. In this system, consumers signal their preferences through their purchasing decisions, influencing what goods and services producers will offer. Producers, motivated by profit, respond to these signals by allocating resources to produce what is most in demand.

Competition among producers is a vital element, as it encourages efficiency, innovation, and lower prices for consumers. Government intervention in a pure market economy is typically limited to enforcing property rights, ensuring a stable legal framework, and providing certain public goods that the market might not adequately supply. However, most modern economies are mixed economies, incorporating elements of both market and command systems. The degree of government involvement can vary significantly, impacting the overall functioning of the market.