The market economy is defined as a system of economics that controls the prices of goods and services. On the other hand, pricing is based on the interactions of businesses and individuals within a society. It also provides a guide to how much or little goods or services should be priced.
Within the system market economy, the intervention of government is potentially nonexistent and minimal. There is no primary planning and the advantage of the market economy is that competition is the driving force behind the decisions that are made. Demand and supply indicate that how goods and services are produced and manufactured.
The disadvantage of the market economy is that it places the transactions which occur in the higher record than the welfare of individuals. In this way, businesses can find the highest quality work that will perform duties with the lowest pay. Thus instead of creating a race to top for wages, the economy in the market creates a race for the bottom.
In this article, we are going to have a look at the most cited pros and cons of the market economy.
Pros of market economy:
Few of pros as under:
In the Market economy, we emphasize innovation and in return, it creates an environment where entrepreneurship can flourish. It also supports the process of discovering and inventing new products or services that will be wanted. Moreover, it also allows individuals and businesses to decide which products and services will match best with their needs.
It is a structure that produces benefits for businesses of any size while creating satisfied customers at the same time.
The market economy flourishes because businesses are forced to innovate to survive. Businesses that refuse to innovate will be left behind because there always will be a way for someone willing to look at things differently.
This motivation is the foundation of a market economy because it must be there to encourage better products and services to be offered with time.
Reduces the need to store products:
Laws of supply and demand are enforced into society, while in the market economy manufacturers produce goods based on the demands that society requires. This also lessens the need to store surplus products because anything extra will be sold at a deeply discounted price or simply destroyed. The main goal is to find a balance between society’s demands and the number of goods produced.
Provides more jobs:
Small businesses in the US economy represent 99 per cent of all businesses and businesses with fewer than 20 employees in the United States account for 89.6 per cent of the workforce. Thus within a market economy, the main focus is on innovation and small businesses to find a niche and provide local jobs that can pay well.
Although the larger companies may outsource jobs so that they can save money and local jobs come from individuals and partnerships that can exploit a good idea they may have.
Provides society with the right goods and services at right time:
Because competition works with supply and demand in a market economy, individuals and businesses receive access to the exact goods or services they require. But the number of goods may vary based on who manufacturers and then different socioeconomic classes can access specific goods within the price range they own. This also eliminates the ability to have a central authority on who should receive access to specific goods and what the price.
Cons of market economy:
Just like pros, the market economy also has some cons.
Harms the environment:
Market economy emphasizes the cost of goods produced over any other factor and this also implies that there are only a few environmental concerns.
It also addresses the concerns during the production of goods. While it cost less to dump waste in nature, it does to properly dispose of it and lack government interference. In other words, a central authority would allow such an action to occur.
The goal of the market economy is to produce the highest quality goods at the lowest possible prices. Many companies also include outsourcing jobs and manufacturing to foreign providers.
Moreover, outside of the developed world, wages are kept much lower and most of humanity then lives on less than $10USD per day. Frequent outsourcing also allows businesses to create better profits.
- Tends to produce inferior goods and services:
The main purpose of the market economy is to create a balance between cost and profit. Moreover, businesses will minimize cost and maximize profits and that usually means skilled workers who demand high wages will be replaced by low or average skill workers.
It can also produce a reasonable, good product while staying at cheap prices. A market economy also provides the best goods and services that can be produced.
Rise commodity prices
Commodities are agricultural products or raw materials that are sold or bought and coffee is a commodity as is copper. Moreover, in the market economy, some items are essential to the manufacturing process, and without them, a business cannot create goods or services for sale.
Because demand and supply rules apply and most businesses need commodities to function. Thus the pricing of these goods is higher and that also get on increasing the final consumer price tag.
Imbalances within the market economy
The great recession occurs from 2007 to 2009 because of a lack of regulation in all sectors and comprises housing all over the world. A similar type of recessions has occurred throughout society and it is very impactful to note that the market economy creates an imbalance.
While more businesses attempt to maximize profit without regard to risk and in some cases negative event occurs and consumers tend to be the hardest hit by the fallout.
The above-listed pros and cons of the market economy show that there exist forces between businesses and consumers that can be beneficial. Even there are minimal controls or regulations to dictate that relationship.
Moreover, there is a present risk for harm to workers and also for the environment. A similar type of risk exists in our economic forms as well. With more emphasis on innovation and chances for entrepreneurs to flourish, the pros of the market economy seem to outweigh the cons. People must look at both pros and cons then make a comparison.