A market economy is an economic system in which the individual people have control, and the government has either a small amount or no amount of control.
Essentially, Consumers and Producers are free to do whatever they want. Producers can set prices as high as they want, however consumers are free to buy or reject those prices, therefore affecting prices. In a market economy, the producer and consumer each benefit from every transaction.
Examples of Market Economies
United States of America
The U.S. is rooted as a market economy, however it still has Government involvement to the degree that it is classified as a Mixed Economy
Similar to the U.S. economy, the United Kingdom has a Market Economy, but with limited Government Involvement. Citizens are taxed by the Government for purposes such as Welfare.
The economy of Canada is also a Market Economy, however there are still taxes that the Government imposes. In fact, taxes in Canada are higher than in the U.S. due to the fact that Canada has free healthcare.
Advantages and Disadvantages
- People work harder for their jobs
- Increased efficiency due to competition
- Great variety of consumer goods
- More innovation due to competition
- People try to acquire the skills to earn certain jobs
- Growing social and economic inequality
- Growing unemployment
- Worsening ecological degradation because industries want to manufacture more and spend less and actively fight regulations.
- Economic crimes such as fraud
Three Basic Economic Questions
Who decides what to produce?
- Businesses decide what to produce based off of supply and demand. What the consumer wants is what will be produced more.
Who decides how to produce it?
- The business that is creating the product is in charge of how they want it produced.
Who are the products produced for?
- The products are produced for the consumers and the consumers are responsible for whether prices rise or drop because of consumer sovereignty.