An Explanation Of The Difference Between Market And Coordinate Economies

An economy is a place of collective exchange, production, distribution, and the sharing of services and products by many agents. By itself, it is understood ‘as a socio-economic domain that focus on the practices, discourses, goods and services related to the production, usage, and distribution of resources.’ This definition of economy can also include a political arena where economic policies affect the allocation of scarce resources. For instance, in a participatory budgeting system where elected representatives regulate public funds, a community determines how much money goes to what public services and what projects are funded through the community’s funds. The definition of the economy has changed over time and differs along with society.


A market economy, on the other hand, is governed by a central economic agency that allocates resources to produce a domestic marketable product. While economies often produce goods in a localized manner, goods may be traded internationally using the state currency and credit system. A market economy can also be characterized by extensive specialization in some industries and the ability to create advanced technologies. In the United States, the technological edge of some companies like Apple Computers has allowed them to compete against other companies that have developed innovative computer applications. Although there are large differences between a market economy and a coordinate economy, both types of economies are characterized by a number of institutions and practices that share the following characteristics: centralized planning, flexible production processes, ample opportunities for resource allocation and flexible exchange systems.

Within a market economy, individuals and households to determine how their scarce physical assets will be used. Resources can be allocated using a variety of methods-for example, land can be used to build homes, provide jobs for residents, or develop goods, depending on the preferences of households. Households then compete to get the best price for the particular goods they need. Resource allocation is affected by households’ expectations about future income and investment potential. A coordinate economy permits individuals and households to make long-term decisions about how their resources will be used; although it simplifies the process of determining what those resources will be used for.