The Regulatory Mechanism of the Market System

Written by daniella lauren
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A market system is the economy found within a nation. It is an accumulation of buyers and sellers engaging in various economic transactions. Like any economy, a free market system has a regulatory mechanism, both natural and artificial.

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The regulatory mechanism in the free market system is competition. Competition drives the acquisition and use of economic resources and the sale of goods and services to consumers. High competition is a natural factor for keeping production costs low to attract more consumers into buying a company's products.


Supply and demand is a common economic theory applied to a free market system. This graph allows companies to determine at what price point they will sell the most goods or services. Competition---primarily from substitute or inferior products---plays a regulatory role because these products affect the demand for a company's products.


The government can play a regulatory role in the market system. Too much involvement results in a command economy, where the government dictates many economic transactions. Although some regulations are necessary in the market system, the long-term effects of these policies may not produce desired results.

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