Market-based economy
The term refers to a system where goods and services are produced based on the preferences and capabilities of market participants. It operates freely under the law of supply and demand, determined by individuals and businesses rather than governments.
In a market economy, sellers aim to offer goods and services at prices consumers are willing to pay, reaching an economic balance when supply matches demand. In contrast, a command economy is government-controlled.
Characteristics of market-based economies:
- People can profit from owning businesses and property in a market economy, unlike in a command economy where only the government has ownership rights.
- In the market, individuals and businesses have the freedom to produce, sell, and buy within government regulations.
- The market is driven by individuals seeking the highest prices for their offerings while trying to pay the least for the goods and services they need (profit motive).
- Competition among producers in the market ensures fair prices, efficiency in production, and a steady supply.
- All participants have equal access to relevant information for decision-making.
- While the government has a limited role in a market economy, it regulates to ensure fair competition and prevent monopolies.
Some countries operating under close to perfect market-based economies are the United States, Canada and the UK.
Advantages of market-based economies:
- Enhanced productivity in manufacturing goods and delivering services as a result of competitive business dynamics
- More innovation
- People are motivated to work in order to accumulate wealth
Disadvantages of market-based economies:
- Inevitable crises because of changing economic cycles
- Higher unemployment levels
- Greater social and economic inequality.
