Market economic system

Market economic system

Market economic system It is also known as laissez faire or free enterprise or capitalist. In this system, resources are privately owned, and production is undertaken for profit maximization. There is little or no government intervention and the forces of demand and supply operate freely to decide on what to produce, how to produce, where to produce, for whom to produce.

This type of economic system was first practiced in U.S.A, Britain and later spread to other countries.

Characteristics or features of market economic system

Private ownership of wealth and income:

Individuals have the right to own, control and dispose of wealth at any time e.g. owning buildings business, any income in the form of rent interest and wages etc.

Freedom of choice and enterprise:

This means that producers and sellers produce and sell what they like while consumers choose to consume. Hence consumers priority is taken into consideration since it is what they like that producers will produce.

Self-interest:

The main aim of every individual is to maximize personal satisfaction (self-interest). Thus, while producers are maximizing profit consumers are maximizing satisfaction.

Existence of competition among firms:

The existence of many buyers and sellers bring lots of competitions. All the firms in this economy are priced takers which are just their prices according to market demand.

Reliance on prices mechanism:

This implies that prices are determined freely by the forces of demand and supply. The price mechanism allocates resources to various uses and determine the prices (equilibrium price)

There is little or no government intervention

There is little or no government influence of the decision of producers and consumers. The ownership or usage of commodities and their prizes.

Advantages of market economy

• It leads to greater efficiency due to competition
• It gives consumers a wider choice of goods
• It encourages individuals or private initiative
• It encourages foreign investors
• It may lead to lower prizes of commodity due to competition.

Disadvantages of market economy

• It brings about inequality in the distribution of income
• It leads to wasteful competition
• It produces monopoly which exploits consumer
• There is instability in the market due to price fluctuation
• It leads to the production of harmful commodities due to their profitability e.g. cocaine, marijuana
• It neglects the production of essential necessities because they give les profit e.g. road construction, pipe born water etc.