A market economy is a market structure where end users are able to control the use and price of products sold through voluntary decisions made in the marketplace according to the law of supply and demand.
In a market economy individuals are the owners of the resources such as land, labour and capital. This makes them price takers of the goods and services.
Characteristics Of A Market Economy
The major characteristic of a market economy is that individuals are the ones in charge of the market resources rather than government or rulers.
How Does A Market Economy Works?
In a market economy resources are provided by individuals and private sectors this makes all firms to sell at the equilibrium price according to the law of supply and demand.
What Are The Advantages Of Market Economy?
1. Competition Encourages Efficiency
In a market economy buyers always go for the firm which produces the best products. This makes all firms strive to produce better products to avoid been left behind.
2. Consumers/Buyers Drives Supply and Demand
Since consumers play a major role in demand and supply, this ensures that the best products which meets consumers needs are produced. Since consumers are willing to pay more for what is best for them.
3. Businesses Invest In One Another
In a market economy business Invest In other businesses which can help them succeed.
What Are The Disadvantages Of A Market Economy?
1. Very High Competition
The competition in a perfect economy may affect firms who can’t meet to the consumers standards or demands. This may lead to a shut in sales or a closure.
2. Private Ownership
The resources in a market economy is privately owned by an individual or firm this makes the government have zero control over the consumers rights.