Advantages and Disadvantages of Market Economy

Market economy system refers to that economic system where the price of goods and services are determined by forces of supply and demand and government has no intervention in deciding the price of any good or service. Given below are some of the advantages and disadvantages of market economy –

Advantages of Market Economy

  1. Since it follows the basic principle of economics which is price determination through supply and demand without any external intervention, it is the most simplistic economic system among all other economic systems.
  2. It increases innovation because people are not worried about any government curb on how much profit you are allowed to earn as with case in planned economy. Unlimited profits are a big incentive for entrepreneurs to innovate new products and service for its consumers.
  3.  Money or capital is used for productive purpose like increasing production, research and development of new products and money it is not spend in unproductive purposes like giving subsidies to poor or rationalizing the basic amenities and so on, hence under this system money is used more efficiently than any other economic system.
  4. This method leads to healthy competition where everyone is trying to achieve something and we all know that healthy competition leads to better utilization of talent as well as resources of the country as a whole.

Disadvantages of Market Economy

  1. It leads to huge gap between rich and poor as rich keeping earning money and since government does not intervene there is no way poor can bridge that gap which is the reason why one seldom finds out a completely free market economy.
  2. It gives undue advantage to wealthy individuals as government does not intervene which leads to monopoly like situation in the economy which in turn leads to exploitation of consumers.
  3. People produce those product and services which lead to profits without giving any consideration to its impact on society or environment so if there is profit in producing nuclear weapons that they will do it regardless of its impact on people.
1 comment… add one
  • Chaaba Eucliffe

    These notes are very helpful, how I wish I could be receiving notes on Business Economics.

Leave a Comment


Related pages


industrial goods examplesthe disadvantage of globalizationdebt factoring exampleconcept of diminishing returnsfeatures of marginal costingbank loan accounting entriesfunctions of regional rural banksunearned revenue t accountadvantages of planned economic systemfeatures of mixed economy systembarter and trade systemadvantages of using fifo methodbad debts journal entrydrawer and draweedefine prestige pricingexample of conservatism in accountingconvertible and non convertible preference sharestrade discount entryfmcg acronymmarket penetration pricing definitionadvantages and disadvantages of autocratic leadershipadvantages of conglomerate mergermeaning of skimming pricinghypothecation mortgagewhat is derivative markethow to fill out a withdrawal slipwholesale lending definitiongatt full formtrial balance accounting definitionmsf bankingover absorption of overheadsmonopolistic competition definition economicsdefinition barter systemdeferred revenue journal entrydepreciation declining balance methoddifference between cash credit and overdrafthorizontal and vertical analysis of a financial statementadvantages and disadvantages of functional organisational structureinternet demeritsadvantages and disadvantages of natural resourcesexamples of unitary elastic demandcapital budgeting advantages and disadvantagessubvention definitionnasdaq fullformdisadvantages of mixed economymerits and demerits of debit cardcagr meaningshukria definitionconsigner meansadvantages and disadvantages of mixed economy systemwhat are inferior goods in economicssimilarities between sales and marketingfull form of fdiwhat does the law of diminishing marginal utility stateconsignees meaninglifo systemfull form of ipobenefits of managerial accountingcharacteristics of a planned economyexamples of nondurable goodsadvantages of a capitalist economymeaning of crossing of chequeadvantages and disadvantages of command economywhat is a horizontal mergerlocal bill discountingexample of unitary elastic demandadvantages of payback period methoddefine ficitiouspure conglomerate mergerdefinition of bearer chequefright means in hindidefinition of drawee and drawer