Advantages And Disadvantages Of A Market Economy

A market economy is an economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country 's citizens and businesses and there is little government intervention or central planning.

A centrally planned economy is an economic system in which economic decisions are made by the state or government rather than by the interaction between consumers and businesses. Unlike a market economy in which production decisions are made by private citizens and business owners, a centrally planned economy seeks to control what is produced and how resources are distributed and used. The production of goods and services is undertaken by state-owned enterprises.

Characteristics

4.The government can determine the price of goods and services. What are the advantages and disadvantages of a market economy?

Advantages:

-Competition between different firms leads to increased efficiency, as firms do whatever is necessary.

-Most people work harder because of the threat of losing their job.

-There is more innovation as firms look for new products to sell and cheaper ways to do their work, which leads to a greater variety of consumer goods becoming available due to competition between companies.

Disadvantages:

-Poor working conditions and unethical decisions can be made as entrepreneurs seek higher profits.

-Free markets can lead to market crashes as we saw in the great depression and the economic downturn in the early 2000 's.

-The overproduction of goods, since workers as a class are never paid enough to buy back in their role as consumers, the ever growing amount of goods that they.

-Growing social and economic inequality (the rich get richer and everyone else gets poorer, many absolutely and the rest in relation to the rapidly growing wealth of the rich);

(Ollman, 1999) (dkrupp87,

In a free market economy, the law of supply and demand, rather than a central government, regulates production and labour. Companies sell goods and services at the highest price consumers are willing to pay, while workers demand the highest wages companies are willing to pay for their services. A purely capitalist economy is a free market economy; the profit motive drives all commerce and forces businesses to operate as efficiently as possible to avoid losing market share to