Market Forces

Market Forces, underlying influences on the operation of the economy. They boil down to supply and demand, which determine price and the allocation of resources. In a pure free market economy, market forces are unrestrained. However, in all countries, governments to a greater or lesser degree restrict the operation of the free market and therefore distort (even negate) the effect of market forces through economic policy. In the former communist countries, the system of central planning left no room for market forces to operate. In other parts of the world, governments have often, for different reasons, sought to override market forces through such actions as the granting of subsidies to firms or services that (it is judged) could not survive in a free market, or the imposition of tariffs or quotas on imports. Increasingly, however, countries are moving towards a position where market forces are allowed to operate more and more freely. A market revolution is taking place in the former communist nations, but changes have also taken place all over the world—from South America to Southern Africa. An open market in which market forces are allowed to operate freely is at the heart of the single market programme of the European Union. However, the principle has never been applied to farming in the EU, which is governed by the Common Agricultural Policy under which prices for agricultural produce are guaranteed, thus encouraging overproduction.

Market forces vary from market to market and derive their power from the individuals who make up a market and on whose lives they have enormous influence. They are determined by such factors as wealth, consumer taste, regulation, and taxation. Stringent safety requirements may push up the cost (and therefore the price) of a potentially desirable product beyond that which a sufficient number of consumers can afford (or are willing) to pay. Tax differentials on alcoholic drinks have encouraged thousands of Britons to make day trips to France in order to stock up with beer and wine.

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Contributed By:
Wilfred Beckerman