Pros and Cons of the Market Economy


The laws of supply and demand form the basis of market economies. This kind of economy is not bound by government intervention and regulation. As such, a product market can – in theory – find equilibrium price that is free of shortages and surplus items. In short, only enough products will be produced in order to meet the needs of consumers.

A market economy is evaluated based on how it can address key economic concerns regarding what goods and services are provided and produced, as well as how these goods and services were produced. In addition, who gets these goods and services is also looked into. Lastly, the economy is also evaluated based on whether it can adapt to change or not.

List of Pros of the Market Economy

1. It provides freedom.
A market economy is based on the concept that people can make their own choices regarding what goods or services they want. In other words, they are free to choose. Some economies impose the goods or services their citizens should avail of. However, this is not the case in market economies.

Through the capitalist system, a market economy is made efficient. How is that the case? Well, a capitalist system is one that works best when there are a least amount of wasted resources. In other words, there is a balance between manufacturers and the public as they make the best use of resources.

2. It drives economic development.
Economic innovation and expansion is possible when the public and corporations are driven to work harder and be more modern. As a result of this, a country’s gross domestic product (GDP) is affected in a positive manner. Not only that, living standards also have the potential to improve. With improved wealth comes an enhanced way of living.

List of Cons of the Market Economy

1. It is costly.
The costs associated with production are one of the downsides of a market economy. Why is that the case? This is because the aforementioned cost is not always paid by the supplier. For instance, when pollution is a by-product of manufacturing- that may not be considered when determining the price a consumer needs to pay for the product. In other words, this external element becomes the problem of others who are not part of the production or sale of the commodities.

2. It is not equitable.
The outcomes of a market economy are not always fair to all parties. After all, a popular singer earns much more than a school teacher because fans are willing to pay for their products (albums, concerts, merchandise, etc). Put simply, the outcome is based on the value that a market economy will put on different services.

A market economy works by producing what people want and not exactly what they need. In other words, this kind of economy will adapt to changes. But in practice, industries that are entrenched may not be so willing to change.

There are products and services that a market economy cannot handle well. In cases like these, the economy is augmented by government services or regulation. For example, national defense is the responsibility of the government. In addition, the regulation of utilities and some industries (particularly those where safety and quality are concerned) is also the responsibility of the government.