Market Economy and Its Characteristics, Pros and Cons

Rules of supply and its demand lead the production and services called a market economy. Laws of supply includes supply of the market resources, supply of capital, and supply of labor and demand includes purchase demand by customers, and the government.

When the businesses offer their production to the market at the highest price, the customers will afford to buy and shoppers tend to go around the market looking for the lowest prices for the products and services that they have been looking for. At the same time, the job candidates bid their services at the highest possible remunerations for their dexterities and the employers look to hire the best skills at the lowest possible prices.

Supply of the capital should be able to set prices and to give out and distribute goods and services in a market economy. Commanding an economy to create a central plan that guides economic decisions, is done by two elements of socialism and communism. Market economies are the advanced form of traditional economies. Most of the modern world economies found in many cities have elements of all three types. Those economies are called mixed economies.

Most of the goods and services we find in the market are privately-owned and the owners can make legally binding agreements on their properties to buy, sell, or lease by giving them the rights to make profits via ownership of properties. Yet, there are some properties that you cannot legally buy and sell to humans according to the United States law since 1968.

In a free and competitive market, the business owners have the freedoms to produce, sell, and purchase goods and services within two limitations. Price at which they are willing to buy or sell and the capital amount they have are the two constraints they face.

Everyone wants to sell their products and services to the highest price and in the meantime, to purchase at a lower price. This logic seems selfish but the benefit that the economy gets via this in the long run is vital. Excessive negotiations from both ways helping to set accurate market values for the goods and services. This gives an accurate picture of supply and demand at any given time.

Force given by the competitive pressure helps keep the prices of goods and services low and it ensures an efficient production flow in the goods and services to the society. By proving the logic of the law of demand, when the demand increases for a particular item, the price of the same also rises. This is the point where new competitors happen to identify the demand as an opportunity to enhance their profits by producing it, adding to supply and more competitors on a particular product make the price go down again by letting the best competitors to remain. This competitive pressure also furnishes the employees and consumers. It creates a competition among the employees to find the highest paid jobs in the industry and consumers to compete for the best product at the lowest price.

A market economy totally depend on an efficient market in which to sell goods and services, which provides similar access to the information to both buyers and sellers of the market. Law of supply and demand of goods and services are purely reflected by the fluctuation of the price. Product price, income of the buyers, prices of related goods, taste of customers, and expectations for the buyers are the five elements of demand.

The duty of the government is to guarantee that the markets are open and functioning. This duty is considered as the incharge of national defense to protect the market. Fulfilling this duty by the government, makes sure that everyone has equal access to the markets. Through this, the Monopolies are penalized by the government to allow more competition in the markets and it makes sure that no one is manipulating the markets and that equal access to information given to everyone.

As the market economy allows the free interplay of supply and demand, it also assures that the most customer preferred goods and services are produced. Highest price paid by the consumers to the things they want the most and businesses will create the things that return profits.

Secondly, this ensures that the businesses shall use the most possible efficient ways in order to produce goods and services. Efficiency will decide productivity and productivity will decide profits, most productive businesses will earn more than less productive businesses.

Thirdly, the competition and improvement of efficiency reward innovation. New products that are creative in better ways will meet the customer needs, to existing goods and services. Other competitors shall also get the advantage and influences of these cutting-edge technologies, so they, too can be more profitable. Best example for this shared knowledge is the U.S. center of innovative technology companies, Silicon Valley and it is today America’s innovative advantage.

Fourthly, the most successful corporates invent in other first-class companies; so that gives them a leg up and leads to an improved production quality.

Competition is the mechanism of a market economy. As a result, there is no system or method to provide care for those who are at an inherent competitive advantage, including elderly people, children, and people with physical and mental disabilities.

Secondly, the caretakers of those who are at an inherent competitive advantage are also at a risk of being disadvantaged in the market economy as those who are caretakers of those people, their energies and skills go towards caretaking, not competing. If they weren’t caretakers, they might have become the contributors to the economy’s overall competitive advantage that leads the idea to the third advantage.

The Human Resources of the society may not be optimized. As an example, a child otherwise find the ultimate cure for cancer, might instead work at KFC to support her low income family.

Fourthly, society outshines the values of winners in the market economy. For an example, a market economy may produce private aeroplanes, jets, and cruise ships for some, while others may starve and are homeless. The decision of a society based on a pure market economy should be made by thinking on whether it’s in its large self interest to care those who are vulnerable.

The world’s premier market economy is the United States. The U.S. constitution has been one of the main reasons behind this success story, as the U.S. constitution has made provisions to facilitate and protect the six characteristics of the United States market economy. The most important ones are:

– Article 1, section 8, declares innovation as a property, by establishing the copyright clause as a law.
– Article 1, section 9, and 10, prohibit states from taxing each other goods and services to protect free enterprise and freedom of choice.
– Amendment IV, limits the government powers over unreasonable searches and seizures to protect people and private property.
– Ownership of private properties protected by amendment V and amendment XIV prohibit the states from taking away properties without due process of law.
– Amendment IX and X limit the government’s power to interfere in any rights not expressly outlined in the constitution.