Examples of market economies in the world
There are many economies in the world that resemble a market economy and allow a certain degree of consumer sovereignty and competition, though most have at least some deviation from a pure market economy. These would include the following:
The United States
Advantages and disadvantages of market economies
A market economy has many advantages. For starters, the strong idea of consumer sovereignty means that the people will have a direct say in what will be produced because they will control demand for a good or service through purchases. Ideally, this would lead to a system where, without effort on the government's part, private business would cater to the wants and needs of the people. Additionally, it would be self-regulation because of competition. If any one company were to charge too much for a product, another company could provide the same product for less, and therefore make the first company obsolete. The needs of the people would still be met without any required intervention. Another chief advantage a market economy has is the possibility of progress. Some economies aim simply to provide what is required to survive. Market economies, however, reward people for new and innovative ideas. If a person has a good idea, he or she can pitch it to the public and try to make a profit from that good idea. Thus, the more good ideas people have the better it is for the economy. See the chart above for a visual of this process.
There are disadvantages as well, however, as a pure market economy has been shown to not work so well. For starters, a market economy can lead to poor working pay due to the extensive hunt for profit. If a company wants to maximize profit, it will want to get the same product produced while paying workers the smallest amount of money possibly. While competition between companies may serve to check this, it is possible that all companies will offer minuscule amounts of money and therefore a problem of minimum wage comes into play. Monopolies, the condition in which one private company has complete control over the market for a product, are another issue with pure market economies. If a company were to get large enough, it could simply buy out any competitors and thus gain an "unfair" advantage over budding competition. A good example of this would be the Standard Oil company, which was really the sole provider of oil in the United States for a while in the earlier days of the country.
How does a market economy address the three basic economic questions?
What will be produced?
The decision of what will be produced in a market economy is driven by the people. Consumer sovereignty allows the citizens to decide what they want to buy, and therefore what demand will be created for. This demand will be answered by private businesses, and they will then produce what the consumers demand. How much of any given product will be produced will also be decided by the people. As demand for a product increases, businesses will want to sell more and thus will make more to meet active demand.
How will it be produced?
In a market economy, the decision for how something will be produced is given to the private businesses that produce the products. Assuming no laws are being broken, the company will decide what type of labor or machinery will be used to produce any given product, as well as what to import or outsource. The resources used to make a product are also product specific, and thus up to the private company.
For whom will it be produced?
The person that anything in a market economy is produced for is a consumer. Money decides who gets what. If someone has unlimited money then they can have unlimited share of the stuff being produced. If someone only has $100, then they can only have $100 worth of the stuff being produced. The government does not have control over distribution of product. Rather, the consumer has the most control over the distribution because they control demand, which controls private businesses.