Advantages and Disadvantages of a Market Economy


Advantages and Disadvantages of a Market Economy
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Pretty much of the modern economic system is dependent on the society where the government has a minimal role to play. A market economy is such an economic system where businesses and individuals control the prices of goods and services based on affordability. This structure is commonly known as market Economy. There can be both Advantages and Disadvantages of a Market Economy depending on the society and typically on the income structure of citizens.

What are the Advantages of a Market Economy?

Since there is the least intervention from the government authorities, the market economy is driven by competition. Depending on supply and demand law, it is the force that forces businesses to take amiable decisions for customers and the market. The following are some other advantages of a Market economy.

1. Societal Needs are met on demand

The competition goes along with the demand and supply in the market. This means the goods and services will always be available for people per their needs.

The manufacturers would intend to produce goods in demand and earn profits to stay in the competition. Also, individuals can get easy access to their daily needs.

2. Product Quality is one of the main advantages of a market economy

Availing the best quality product at the lowest prices is one of the key features of a market economy. As a result, multiple brands are manufacturing the same product with varied quality.

If a consumer doesn’t like a particular item they can buy the same product from another manufacturer. Therefore, a manufacturer would push to enhance the product quality to draw customer’s attention.

3. Fair Pricing

The goods and services are affordable to everyone in the society, which is one of the considerable advantages of a market economy. Therefore, manufacturers tend to produce more goods than can fit into customer’s lifestyle.

Consumers expect better quality at fairer prices. Considering that customers would switch to the alternative as soon as they see a sudden price rise in the commodity, manufacturers have to keep the price range fair and legit.

4. Competition

Competition keeps the pressure on manufacturers to work efficiently, incorporating new innovative methods to attract more and more consumers. Competitors can enhance their profit by producing in-demand goods, adding to supply, which lowers prices to a level where only the best competitors remain. The same applies to employees where they compete with each other for the highest-paying jobs.

5. Private ownership

The market economy is also called a free economy for good reasons. First, there is no government’s inference; second, manufacturers have freedom of choice. They can produce, sell, and purchase goods and services in a competitive market.

The only restrictions are the pricing and the amount of capital they have. Since the mixed economy is mostly privately-owned, the manufacturers also leverage profits. Freedom to sell and generate more personal profits are common advantages of a market economy.

What are the Disadvantages of a Market Economy?

Every economic structure has some limitations, which range from poor quality goods to expensive products. Some other disadvantages of a market economy are listed below.

1. Competitive disadvantages of a market economy

Since a free economy is driven by competition, the competition itself oftentimes becomes one of the biggest disadvantages of market economy. The manufacturers who are more disadvantaged due to lacking resources and capital remain low in the competition.

2. Poor Quality

Lack of capital or exceptional rise in demand disturbs the demand and supply curve, which forces manufacturers to adapt to negotiable methods to balance the cost and profit.

The manufacturers set their standards according to the use of raw materials and prices set in the market. Sometimes, it’s the consumers who suffer from such disadvantages of a market economy.

3. Harm to Environment

Most problems related to a free market economy occur due to the lack of intervention of governments. Rampant use of natural resources to produce goods and services is one of the major disadvantages of a market economy.

The use of plastic casing and packaging is a common example of environmental damage. This is where government regulation is essentially required.

4. Outsourcing

In order to save capital on resources, space, and workers, manufacturers generally outsource the production to other companies/countries. The work is routed through automation which often results in worker exploitation.

For example, Pakistan is known for manufacturing Scottish Kilts and major league Footballs at cheap labour. The labourers have no insurance or financial security and work in unfriendly conditions.

5. Adulteration

A free-market economy may be profitable for the wealthier and more established sections of society, but it may not be the same for the underprivileged ones. Many manufacturers follow malpractices to produce a higher quantity of goods.

Adulteration is one of the concerning disadvantages of a market economy for the society where manufacturers ramp up production methods by mixing unhealthy elements to the edibles to match the growing demand with the supply.

Conclusion on Advantages and Disadvantages of a Market Economy

A free-market economy is one in which runs without government’s regulations. This could be the deciding factor why there exist limitations with this economic system. Therefore, understanding the Advantages and Disadvantages of a Market Economy is essential while considering who takes the most business decisions and how it serves society.

 
 
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