Question

Write down limitation and benefits of Market Economic System.​

Answer 1

Advantages of a Market Economy

A market economy has a number of advantages:

1. Goods and services are produced according to consumer demand. The structures of a market economy ensure that the goods and services the most people want are produced since consumers will pay the highest price for the items they want the most, and businesses will produce those items that will return a profit.
2. Efficient production. A market economy rewards the most efficient producers since efficient producers will earn more money than inefficient producers.
3. Rewards innovation. New, exciting products will satisfy consumer demand better than existing products, and competitors will recognize that they can increase their profit by producing an innovative product.
4. Investment. Market economies encourage successful businesses to invest in up-and-coming companies, thus increasing the quality of production.

Disadvantages of a Market Economy

The disadvantages of a market economy are as follows:

1. Competitive disadvantages. A market economy is defined by cutthroat competition, and there is no mechanism to help those who are inherently disadvantaged, such as the elderly or people with disabilities. The caretakers of those people are also at a disadvantage, as they must allocate their time and resources towards caretaking instead of working within the market.
2. Lack of optimization. The economic cost of a market economy is that its participants may not be optimized. An inherently disadvantaged person may have no choice but to work a minimum-wage job to support their family instead of becoming a doctor or a scientist.
3. Wide social and economic gap. Since market forces dictate the winners and losers of a market economy, there can be an extremely wide gap between the super-rich and the super poor.