Advantages and Disadvantages of Market Economy

Market Economy

Market economy is based on supply and demand where the prices of goods and services are determined within a free price system. This system encourages economic freedom and was set up so that it would regulate itself due to money flowing where the demand is greatest and encouraging competition and initiative. There are many advantages and disadvantages of market economy which are described briefly below.

market economy

market economy

Advantages of Market Economy

Market economy has several advantages. Having a healthy competition and a system that encourages entrepreneurship is important in any market. Below are some of the major pros of market economy.

  1. Harder working employees due to the threat of losing their job or being laid off because the product or service is not selling.
  2. Friendly competition between companies will encourage efficiency among employees to lower costs for success.
  3. Companies become creative in finding new products to sell or manufacture and less expensive ways to accomplish their goals.
  4. As companies grow because of the market economy, foreign investors will begin to take an interest and help expand.
  5. Private companies take over activities and venues that were in the past public sector. This reduces the size, power and cost of state bureaucracies.
  6. Production increases for the frivolities that will cost more money but people want. This is a classic example of supply and demand.
  7. Social and technical skills needed to function within a market economy system are quickly learned as is the knowledge to succeed.
  8. There is a larger variety of consumer goods available for a wide range of people ranging from middle-class to the very affluent.
  9. Encourages people to step up and try their hand in the market economy. Encourages entrepreneurs to start up a business and sell merchandise or offer services at competitive rates.

 market economy

Watch the below video to understand market economy in-depth


Disadvantages of Market Economy

Although the market economy system sounds ideal, there are always problems with any type of economic system. Here are some of the disadvantages of the market economy system.

  1. The exploitation of workers has a big disadvantage because of the working conditions, long hours for less pay for a very few benefit. The large corporations have moved their production to countries where they can get cheap labor with few safety regulations for the workers.
  2. Investment priorities and wealth becomes distorted. The wealthy keep getting wealthier and the public sector such as public education, transportation routes and public health does not get the needed funds to keep evolving and providing for the public’s needs.
  3. Goods will be mass produced and therefore the cost will be driven lower. As a product becomes popular and overproduced, the manufacturers must unload the goods, even if that means lowering prices to where the general public can afford them.
  4. Due to overproduction, industrial machinery will lay idle and there will be no production or profit for the manufacturer. Until the prices drop, the goods will remain unsold and people who cannot afford them have their needs unmet.
  5. Unemployment rates go up due to the overproduction of goods. Workers are not needed to keep producing goods and therefore companies cannot afford to keep workers employed.
  6. Having the market economy system will lead to periods of economic crisis. The economy will stop growing when goods are overproduced and workers are then unemployed. The economic crisis will not end until the next item is found that the wealthy just have to have. Then the cycle starts again.
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  1. javeria khan says:


  2. Iverson White says:

    This website was very useful for me, and gave the answers i was looking for. It’s direct, and straightforward. Gets right to the point , thank you.

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