In general definition, a Market Economy refers to the structure and system in which supply and demand identify the monetary rules and the prices of available goods and services. The system of Market Economy System is the opposite of the system of a Command Economy which is conducted by private parties. In Market Economy system, the government only oversees and leads the state administration of the economic activities.
The Characteristics of Market Economy
- All of the production sources belong to the community. Society has the freedom without limits to choose the sources of production.
- The government does not intervene directly in the economic activities.
- The community is divided into two groups, namely the employers or the owners of the production resources and a group of workers (laborers).
- There is competitions within the community. As the consequence of the freedom to have the sources of production, competitions arise in the pursuit of profit.
- Any economic activity relies on profit-making
- Economic activities always consider the market situation. The market is the basis for every economic action. For example, what people need and how to produce high-quality goods.
The Advantages of Market Economy
- Grows the community initiatives and creations in managing the economic activities. The public doesn’t have to wait for a command from the government.
- Every individual is free to have production resources. Such condition encourages the community to participate in the economy matters.
- The emergence of competitiveness that helps all parties to move forward as economic activities are entirely from the initiative of the public.
- Capable of producing high-quality goods, because low-quality products would not be sold in the market.
- High efficiency and high effectiveness as every economic action rely on the motive to make a profit.
The Disadvantages of the Market Economy
- It’s difficult to make the equity of income and the free competitions cause the income is more on the capital owner or employer, while the workers only receive a fraction of income.
- The owners of production resources can exploit the working class. So, the riches get richer, and the poor tend to remain poor.
- The risk of monopoly that can harm the public.
- There are probabilities of constant turmoil in the economy due to the misallocation in the economy due to misallocation of resources by individuals.