Advantages and disadvantages of a market economy

In order to understand what are the main advantages and disadvantages of a market economy, let's try to understand the definition of its concept and basic functions. The market economy consists of a multitude of participants who make independent economic decisions. If these solutions were not connected in any way with one another, the system would represent chaos. How is the relationship between the individual actors carried out?

Market

Communication is carried out by the market - the basis of the economy. On the ideal market for the same product is set the same price in a certain period of time.

This is facilitated by:
• unlimited constant demand;
• increase in the number of business entities;
• maximum possible awareness of these subjects;
• freedom of competition, both among buyers and sellers;
• mobility of production factors.

Elements of the market as the main link of the market system

The advantages and disadvantages of a market economy are also determined by the basic elements of the market and by the variety of forms of ownership (private, cooperative, joint-stock, state, etc.) to ensure its high competitiveness.

The main elements of market infrastructure:
• the financial market;
• the market of production factors;
• market of goods and consumer services.
All these elements are interrelated, and if they are normally balanced, then the economy functions without failures.

What problems does the economic system solve?

Before answering the question, what advantages and disadvantages of a market economy are decisive, it is important to know what it is needed for at all, what is the main problem that solves. Actually, any economy is called upon to solve the global contradiction between the boundless material needs of society and limited, or even rare, economic resources.

This contradiction can be expressed in five more simple questions:
• what products must be produced;
• how much;
• how;
• who will consume it;
• how quickly the system adapts to changes in consumer demand.

Depending on the quality of the answers to these questions, the advantages and disadvantages of a market economy are determined. These are the main issues to be answered by the economic system.

Advantages and disadvantages of the market system

Advantages
• Effectiveness of resource allocation.
• Availability of freedom of choice for consumers and entrepreneurs.
• The ability to meet a variety of needs, improve the quality of goods and services.
• Ability to adapt quickly and easily to the ever-changing market conditions.
• Initiation of the implementation of the achievements of developing scientific and technological progress.
• Ability to operate in uncomfortable conditions of limited information.

disadvantages
• Fading competition.
• Uneven distribution of income.
• Instability of development and not always effective production.
• Inflation and unemployment.
• The tendency towards monopolization.
• Impossibility to provide fundamental scientific research.

Development trends

The system of market relations never stands still - this is its main advantage, and the shortcomings of the market economy are offset by the tendencies to correct them. A major role here is played by state regulation and the changing forms of all types of entrepreneurial activity. There are new forms of labor relations, when hired workers take part in the management of the enterprise or firm. The state has the ability to influence the narrowing or expansion of competition. The share of small businesses that are more mobile to changing conditions is increasing. While profit still comes first, enterprises are interested in maintaining their competitiveness and are taking targeted actions to do so. And, most importantly, the market economy is focused on satisfying consumer demand.