Advantages and Disadvantages of a Market Economic System


Free market or market economic system is best described as an economic system wherein creation and allocation of goods as well services, is not at all or slightly controlled by the government of the country. There is no restriction on the flow of commodities and or services among private participants or groups thereof.  It is the law of demand and supply that controls the prices of commodities and hence their production. Like any other economic system, there are advantages and disadvantages of a market economic system.


If one tries to assess the advantages and disadvantages of a market economic system, one disadvantage that becomes very obvious is the socio-economic divisions that it causes because of its very competitive and open nature. As the difference between the stimulus and capabilities of individuals is very vast, over prolonged period of time this system of economy has a propensity to an escalation of wealth among decreasing number of people. It becomes self satisfying as the more is the wealth with an individual, the easier it becomes for him to gain more wealth whereas those lacking it find it increasingly difficult to acquire it. 


Since market economy creates extremely competitive environment, it causes efficiency to go up. It’s easy to understand this phenomenon.  If a product doesn’t work to the expectations of users, people stop buying it and the manufacturer loses business, making it necessary to improve its features or forego its production and hence profit.  The compulsions of market necessitate improvements and modifications to be able to survive prevailing economic environments.


In case of free markets, it is the spirit of enterprise that flourishes. A lot of human effort is made in recognizing and fulfilling market requirements because of the motivation to make more profit. Market may have demand for special or niche products, which markets other free markets may not find worthwhile or viable to produce. An example is that of machines designed for handicapped people.  Since the possibility of making profit is there, free market economy comes up with a solution for special products, though their requirement is quite limited.


A drawback of free economy is that at times the consequences of profit driven economic activities may harm others collectively or individually. In this kind of economy something that may be profitable or worthwhile for one or many persons or companies may prove harmful or of little use to others. For instance, a manufacturer would find it quite expensive to take steps for reducing harmful environmental effects caused by the process of manufacturing being followed by him. Unless these harmful effects affect the profit of business or there is a legal obligation to implement those steps, the business is not prompted to undertake implementation of those steps.

In their attempt to assess the advantages and disadvantages of a market economic system, many would appreciate that on the whole this system has more advantages than disadvantages


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