Why is the market considered a self-regulatory mechanism

The self-regulating mechanism of the market is determined by the interaction of supply and demand in a competitive environment. Thanks to this interaction, it is determined in what quantities and at what prices goods and services are most in demand for the consumer.

Self-regulation mechanisms

The main condition for market self-regulation is the presence of free competition, which ensures the desire of manufacturers to produce higher quality goods at a more affordable price. The competition mechanism crowds out unprofessional and inefficient production from the market. This need determines the development of innovations in production and the most efficient use of economic resources. This feature of the market provides the development of scientific and technological progress and improving living standards.

The market as a self-regulating mechanism is a process of optimal allocation of resources, production location, combination of goods and services, exchange of goods. This process is aimed at striving for a balanced market, i.e. the balance between supply and demand. Depending on general economic and local factors, market demand is formed, which changes under the influence of scientific progress, the effect of "saturation", and changes in tastes. The flexible pricing policy of the competitive market allows manufacturers to constantly adapt to changing demand conditions, trying to bring the most demanded supply to the market.

There are two scientific approaches to explaining market self-regulation. These approaches are reflected in the Walras model and the Marshall model. The Leon Walras model explains the presence of market equilibrium by the ability of the market to quantitatively "substitute" supply and demand. For example, in the case of low demand for goods, producers reduce prices, after which the demand for goods will increase again - and so on, until the quantitative ratio of supply and demand is equalized. The presence of excess demand will allow producers to raise prices, which will reduce demand - and so on until a balance is reached between supply and demand.

The Alfred Marshall model sets the basis for market equilibrium in the impact of prices on supply and demand. So, if an inflated price is set for a product, the demand for it falls, after which the producer reduces the price, and the demand for the product rises - and so on until the price of the product becomes maximally determined. Such an optimal price is called equilibrium.