Advantages and Disadvantages of Market Economy

Market economy system refers to that economic system where the price of goods and services are determined by forces of supply and demand and government has no intervention in deciding the price of any good or service. Given below are some of the advantages and disadvantages of market economy –

Advantages of Market Economy

  1. Since it follows the basic principle of economics which is price determination through supply and demand without any external intervention, it is the most simplistic economic system among all other economic systems.
  2. It increases innovation because people are not worried about any government curb on how much profit you are allowed to earn as with case in planned economy. Unlimited profits are a big incentive for entrepreneurs to innovate new products and service for its consumers.
  3.  Money or capital is used for productive purpose like increasing production, research and development of new products and money it is not spend in unproductive purposes like giving subsidies to poor or rationalizing the basic amenities and so on, hence under this system money is used more efficiently than any other economic system.
  4. This method leads to healthy competition where everyone is trying to achieve something and we all know that healthy competition leads to better utilization of talent as well as resources of the country as a whole.

Disadvantages of Market Economy

  1. It leads to huge gap between rich and poor as rich keeping earning money and since government does not intervene there is no way poor can bridge that gap which is the reason why one seldom finds out a completely free market economy.
  2. It gives undue advantage to wealthy individuals as government does not intervene which leads to monopoly like situation in the economy which in turn leads to exploitation of consumers.
  3. People produce those product and services which lead to profits without giving any consideration to its impact on society or environment so if there is profit in producing nuclear weapons that they will do it regardless of its impact on people.

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One comment

  1. These notes are very helpful, how I wish I could be receiving notes on Business Economics.

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