By: Natalia Medina
- A Market Economy is most commonly defined as an economic system based specifically on individuals decisions and their voluntary exchange/actions.
Fundamentals of a Market Economy:
1. Private Property: Individuals have the right to buy and sell their own property.
2. Specialization: Concentrate business efforts in advantageous areas.
3. Government involvement:Very little government involvement.
5. Voluntary Exchange: Benefits outweigh the costs when starting a business.
6. Profit: Maximize their profits.
7. Competition: Offering the best deal to their customers.
8. Consumer Sovereignty: Freely decide what to buy no matter what the cost is.
Examples of Countries with Market/Mixed Economies:
1. United States of America
4. Hong Kong
7. New Zealand
Advantages and Disadvantages of a Market Economy:
1. One has the ability to own their own property and has little restrictions or intervening from the government (Laissez Faire).
2. Economic and Political Freedom: People are able to act independently on what they buy or sell.
3. Individuals profit from a market economy.
1. Little concern for public goods and services because the focus is so heavily on the sole individual.
2. No security for the elderly.
3. Cannot restrict unequal distribution of wealth.
Answering the three basic economic questions:
What to Produce?: Market economy focuses on the individual and how to satisfy his or her needs with goods/services.
How to Produce?: The individuals usually produce in a way that will benefit themselves.
For whom to produce?: The main focus in a market economy is to produce for the individual who is willing to buy and sell the items.