The market economy is delivering miracles by the minute and yet we hardly notice or care; worse, we denounce the realization of this dream of all of history, this coming of heaven on earth and call it decadent and dangerous.
― Jeffrey Tucker, It's a Jetsons World: Private Miracles and Public Crimes
In a market economy, the market forces of demand and supply determine the production of any entity. The goods that are in demand are produced more. The factors of production can be employed by a private entrepreneur. Everybody has a freedom to choose their own way to utilize the resources, and accordingly, produce goods in any field of their choice. Since demand and supply influence economic decisions, consumer is the king in a market economy.
Consumers' preferences are the ruling policy in a market economy. Goods that have higher demand will have higher prices. However, a shift in demand will immediately impact the price of the product. The question of scarcity is answered by market forces. Individuals can own property, sell it, or pass it to the successors. This is no restriction on the amount of assets one can acquire, given that the individual possesses the purchasing capacity.
Features of a Market Economy
❏ Economic decisions influenced by the forces of demand and supply.
❏ Complete freedom to utilize resources as per an individual's purchasing capacity.
❏ No government intervention.
❏ Private entrepreneurs can take up any production, and employ any resource, factor of production, and innovate according to his/her choice.
❏ Usually, profit is the main motive in a market economy.
❏ Individuals can privately own property.
❏ Due to greater competition and the quest to grab consumers' attention, entrepreneurs strive to produce superior quality products. There is increased willingness to take risks due to the freedom the entrepreneurs enjoy. Innovation will always benefit the consumers in the long run.
❏ With increased production and innovation, standard of living of the people in the country increases. The GDP of the nation increases, since there is initiative to employ new ideas in the market. Freedom of action and choice also boosts the morale of employees and workforce to perform better.
❏ With the nation's economy improving, foreign investors are encouraged to invest in a fast-growing economy.
❏ Due to innovation, trained and skilled workforce increases, and technological advances are adopted quickly.
❏ A market economy rewards in the form of profits. This motivates the worker to strive harder, since an adequate compensation works as the best catalyst.
ConsExamples of Market Economy
❏ Less government intervention and market forces may prove oppressive to those belonging to the lower economic strata of society. It may favor only those who have higher purchasing power, and all the resources might be governed or owned by a select few.
❏ It might increase the gap between the rich and the poor.
❏ Unemployment and other social evils might increase, since profit is the motive of majority private entrepreneurs. Public goods might suffer, and in some cases, the market economy may encourage production of harmful goods, such as drugs, even though their production may be profitable.
❏ Consumers' preferences can be manipulated and misguided by advertising and other marketing techniques. This might result into exploitation of resources for unwanted goods.
❏ There is scope for unhealthy completion and unethical business practice to seep in.
There is no country which has complete market economy in the true sense. Government intervention, to some extent, is always present, though in varying proportions, especially in case of manufacturing of public goods. This is done to ensure that supply of necessity goods are not concentrated in the hands of a select few. Hong Kong, Singapore, Australia, United States, Switzerland, Denmark
, are a few examples of nations that have a predominantly market economy.
While it is difficult to come to a consensus, there is no economic system that can be said is a fool-proof method to answer the question of scarcity in the most effective way. Like Charles Wheelan, (Naked Economics: Undressing the Dismal Science) has stated, A market economy is to economics what democracy is to government: a decent, if flawed, choice among many bad alternatives.
Many traditional economists are wary of letting privatization seep in the economy. But, that cannot erase the positive effects of market economy that are visible throughout the world.