Home Economy 10 Significant Pros and Cons of the Market Economy

10 Significant Pros and Cons of the Market Economy

A type of economic system practiced by most countries, including the United States, is the market economy. This is a system wherein the market is run by the law of supply and demand. Here, the government or a central authority does not dictate what products are to be sold in the market, unlike the command economy.

With the merchandisers and buyers being the major players, there are still contentions between economists and politicians on the benefits and setbacks of this economic system. Here’s a look at the pros and cons of the market economy.

List of Pros of the Market Economy

1. There is sufficient production of goods.
Proponents claim that a market economy allows for enough supplies of goods available to consumers. Since the principle of this economic system is based on supply and demand, capitalists will ensure they can deliver what the target market wants. As opposed to a command economy where a central authority dictates what commodities are to be produced and sold, a market economy gives merchandisers freedom to choose what products are viable.

2. It results to a win-win situation for capitalists and consumers.
Supporters of the market economy express their views about a system that gives the freehand to manufacturers to come up with products they know will be saleable. On the other hand, consumers are free to buy products they want as well as look for great deals. In the end, business owners will have enough profit to thrive in the industry while there will be happy and satisfied customers.

3. It motivates merchandisers to produce quality products.
Advocates say that the market economy is an effective system because merchandisers are there to make a profit. And since this depends on the number of sales they make, this becomes a driving factor for them to develop products of quality and selling factors.

4. There is less shortage and surplus of products.
Since there is little or no government intervention on what products are sold in the market, the responsibility lies on capitalists when it comes to market and product research. They will be the ones to conduct surveys on a daily basis to know what the market demands. Unlike in a command economy wherein there is an authority that dictates on what goods manufacturers can produce and market, in a free economic system, capitalists have a more accurate data. This minimizes shortage and surplus in production because they have the exact numbers, more or less.

5. This economic system creates employment opportunities.
Proponents claim that the market economy is not only beneficial to the buying public but also to millions of people who need employment. An entrepreneur in the garment industry, for example, will need hundreds of workers to get the business going. This means more jobs and less unemployed people.

6. It encourages competitiveness.
With individuals or entities free to manufacture and offer products in the market, there will be healthy competition among companies selling the same products. And to stay in the competition, manufacturers will be improving quality of goods and offering fair prices for commodities. Consumers, on the other hand, will have access to products that are of quality but within the budget.

List of Cons of the Market Economy

1. Market economy can result to having inferior products.
Opponents contend what supporters say about high quality products being sold in the market with this economic system. They say that since capitalists will be focusing on making profit, they will be attracted to mass produce. Oftentimes, mass produced merchandise is of low quality since these capitalists will be more interested to supply what consumers are looking for at a given period and pay less attention on the quality of the products they sell.

2. It is not beneficial to workers and the environment.
Critics are concerned about the plight of workers, especially those who work in factories and manufacturing plants. They say that with the goal of enterprises to earn profit, the welfare of workers will be taken for granted. There will be poor working conditions, low salaries and lesser benefits. Moreover, some capitalists prefer to outsource manufacturing and investing in other countries since they will be able to haggle for lower salaries. This also takes away jobs from local as well as taxes which should be paid to the government. With the motive to earn profit, workers and the environment can suffer. There have been reports of environmental hazards such as oil spills and dumping of toxic waste materials.

3. It can cause prices of commodities to skyrocket.
In a command economy, the government has the last word not only on what products are to be sold in the market but also how much the prices are. This is not what happens in a market economy. Critics are not in favor of this since it will give capitalists the power to control the market and product prices. They can monopolize the dispensing of goods and demand these products cost.

4. It can create an imbalance in the economy.
Opponents criticize that without regulation in the market, situations that can result to government expenses will arise. With free market, fraud and abuse is possible as in the case of the controversy in the savings and loan industry in 1982 wherein the Federal government spent $500 billion. Another instance was the series of lawsuits filed by women against silicone breast implant manufacturers for leaks on the implants. Critics say that these were rooted from lack of regulation.


There has always been a debate on the efficiency of the market economy. The question whether it is better than command economy is still ongoing. Advantages pointed out by proponents are valid but so are the views expressed by opponents. After all, there really is no perfect economic system. People must look at these benefits and setbacks and make a comparison. It is also wise to consider regulation in some aspects of the market. Freedom with some limitations might be the ideal economic system. This way there will be balance in the market.