Market Economy

A Market economy is based on individual choice, not government directives. In other words, in this system consumers and producers drive the economy. Consumers are free to spend their money as they wish, to enter into business, or to sell their labor to whomever they want.

Example of Market Economies include New Zealand, Australia, Switzerland, Singapore, and Canada.

Advantages and Disadvantages

Although the Market economy is one of the more economies, like every other economy is has advantages and Disadvantages.

Advantages:

(1) The market gives producers an incentive to produce goods that consumers want.

(2) The market provides an incentive to acquire useful skills.

(3) The price system encourages producers and consumers to conserve scarce resources.

(4) Competition pushes businesses to be efficient: keeping costs down and production high.

(5) The market system involves a high degree of economic freedom.

Disadvantages:

  (1) A private market economy may be quite unstable (unemployment, inflation, growth)

(2) Business may simply satisfy the wants they have created through advertising.

(3) Prices may give false or inadequate signals to producers and consumers (externalities, like pollution).

(4) Markets just do not work in some areas (public goods, such as national defense).

(5) Monopolistic industries may restrict output and drive up prices.

(6) Market economies tend to produce a skewed distribution of income (large gap between the rich and the poor).

Mixed Economies

A mixed economy is an economic system that has elements of traditional command, and market economies is the most common type of economic system.

Examples of Mixed Economies include: The United States, South Korea, Finland, Germany, and Japan.

Advantages and Disadvantages

Advantages:

  • State provides the essential services
  • Private sector encouraged for profits
  • Competition keeps prices low
  • Consumer choice
  • Inefficient business behavior controlled

Disadvantages:

  • Heavy taxes reduce incentives to work hard or make profits
  • Less efficient than private sector
  • Excessive control over business activity can add costs and discourage enterprise

Comment Stream

2 years ago
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2 years ago
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2 years ago
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2 years ago
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2 years ago
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