Question about economics?

Question

I am working on an extra credit assignment for economics and need some help with a question, well rather some concepts. What is meant by a self regulating market and why do classical economists subscribe to this view?

Answer 1

A self-regulating market is a market that regulates itself in order to avoid government interference (read regulation). Take for example the utilities industry in some states for example. They are self-regulating because they want to avoid gorvernment regulators. Any time government gets involved in the private sector, things get more complicated. The bar gets raised and companies have to follow more complicated rules. An example of an industry that is heavily regulated by the government is phamacitical. Before any drugs can be sold, they need to go through extensive testing with the FDA. Look at the television and radio stations now days... they take their own shows off the air because they don't want to pay fines of have harder rules on what they can broadcast.

Classical economists like this view because it keeps the government away, and let the markets work to perfection. I hope this helps.

Answer 2

Good question. I have a hazy understanding of this that I would find difficult to put into words, so I look for other answers. If no one else provides a good answer, I'll make an attempt shortly.

OK, the other person got some of it, let me add some.

Say I make a line of toasters. It is in my best interests to make those toasters attractive, reliable, inexpensive, and safe. Because if I fail in any of those things, few will buy or worse, I will be sued out of existence.

So in making my toasters, I decide it would be a wise idea to have an independent product safety firm, namely Underwriters Laboratories (my former employer), evaluate the design and test for safety. If my toaster passes it's design review and tests, UL considers the toaster safe, they will "List" it in their product directories, and allow me to put a label on it, saying it is Listed. Because I've done that, retailers will allow me to sell the toaster, because I've had it listed by an independent test lab.

In this example, the marketplace provides all the necessary incentives and penalties, to make me market a good and safe product. No government intervention is necessary. Thus the market is self-regulating.

Answer 3

Trying to brush up my memory here.... Self regulating market is a mechanism where the market equilibrium (price / availability) is achieved by the supply of and the demand for a good or service intersects and continually adjusts. This presupposes sufficiently large number of buyers and seller, perfect knowledge (about the market conditions) and perfect mobility (of resources like labor, capital, etc...). The underlying notion is that barring short-term fluctuation, the marker will take care of itself. Hence the term "invisible hand".