Question

What are the limitations of Market mechanism system​

Answer 1

Answer:

Explanation:

Disadvantages of Market Mechanism are given below:

(i) There is as much evidence of market failure as there is of failure in state intervention. Both market and government are imperfect alternatives.

(ii) Market can only serve those who are part of the market system. It is a good servant but a bad master.

(iii) Market forces lead to sometimes misallocation of present and future resources or at least to one which may not be in the best long-run social interest, as the process fails to take care of priorities.

(iv) Market mechanism fails to provide a proper guideline for using appropriate material for selecting project. It diverts investment to those directions in which profits are high, neglecting socially desirable low profit ventures.

(v) Do not bring competition in fullest sense.

(vi) They often lead to the creation of monopolies and oligopolies.

(vii) In less-developed countries or economies, market prices of such factors of production such as labour, capital and foreign exchange deviated substantially from their social opportunity costs and were not therefore, a correct measure of the relative scarcity or abundance of the factor in question.

(viii) Market forces by themselves, cannot overcome the deep-seated structural rigidities in the economies of developing countries.

(ix) Market as a mechanism does not ensure that individual decision will optimize economic perform­ance in terms of society’s preferences and economic goals.

(x) It does not ensure that the prosperity at the top will trickle down to the bottom.

(xi) Externalities: Because of externalities many projects that developing countries need, which would be profitable to society, may not appear profitable under a pure market system in which all investment divisions are left to private individuals.