Market Economies- characteristics and examples.

Examples of Countries under Market Economy are

United States of America (USA) - leading in their support for market economy have many laws such as anti-monopoly laws that restrict free competition, which is essential for a pure market economy. They provide defence, law and order and other public services.

Canada- Public sector provides other goods and service apart from pure public goods example. Education

Russia

Taiwan

 

How does the Market Economy function?

This economy function in a way that it depends upon the forces of the market, namely demand and supply. The institution of the market allocates and distributes commodities based on the principle of “price” determined by the interaction of the forces of the market. Price of a commodity generally shoots up when its demand exceeds supply and when the reverse occurs, it is generally associated with price cuts of the good in question. In a way, free market gives the absolute power to prices to determine the allocation and distribution of goods and services. These prices, in turn, are fixed by the forces of supply and demand of a commodity. In cases of demand falling short of the supply of a commodity, the price will fall as opposed to a price rise when the supply is inadequate to meet the growing demand of a good or service.

Advantages of Market Economy

• Competition between different firms leads to increased efficiency, as firms do whatever is necessary including laying off workers to lower their costs- due to which the government does involve in this  economy firms utilized the resources in the best way to produce output in order to obtain income.
• There is more innovation as firms look for new products to sell and cheaper ways to do their work.
• The forces of production or at least those involved in making those things people with money at home or abroad want to buy, undergo rapid development.
• Capital flows to where it will get the greatest return, expanding the total size of the economy to its maximum level.
• Consumers have choices- with government not involve full in the economy consumer have to decide how to utilized their resources in the most efficient way.
• Work is encouraged as taxes are very low, and there will be no state support for non-workers.

Disadvantages of Market Economy

• Overproduction of goods, since workers as a class are never paid enough to buy back, in their role as consumers, the ever growing amount of goods that they produce -in the era of automation, computerization and robotization, the gap between what workers produce and can produce and what their low wage allows them to consume has increased enormously.
•  Growing unemployment- with increase in technology and mechanization machines and raw materials are available, but using them to satisfy the needs of the people who don't have the money to pay for what could be made would not make profits for those who own the machines and raw materials and in a market economy profits are what matters.
•  Reduced social benefits and welfare-since such benefits are financed at least in part by taxes, extended benefits generally means reduced profits for the rich furthermore, any social safety net makes workers less fearful of losing their jobs and consequently less willing to do anything to keep them.
• No government control over pollution-due to how the does not involve in this economy no laws or policies are being made on behalf of firms on the environment.
• Monopolies might be created as business owners see the gains to be made from reducing competition.

Movement away from Market Economy

Command Economy to Market Economy

Georgia- Georgia broke away from the USSR in 1991. Since that time it has experienced a number of political and economic difficulties as it has come to terms with its independence. Due the decision making by bureaucrats and progress it caused the country to switch to market economy.