What is a Market Economy

A market economy is a market which the private sector solely controls. Government does not influence it. In this economy, the countries’ supply and demand measure production. If the demand of goods and services is high and their supply low, the price will be high. If the demand is low and the supply is high, then the price will be low. Therefore, companies produce goods and services according to the customer’s demand and the rate of consumption. Therefore, turning to a market economy means having this economy in the country.

A free market economy has several advantages. It gives freedom the consumers and sellers. The consumer gets the freedom to purchase any commodity while the seller gets the freedom to produce or manufacture any product or commodity. In this economy, the government’s intervention is negligible thus it is the sellers and buyers that enjoy the full benefits. In this economy, there is transparency in the setting of prices of goods and services. In this economy, due to the freedom of sellers to produce a product of choice there is equal distribution of resources. In developed countries, the economic growth increase in competition enhances economic growth.

This economy has its disadvantages; it has less provision of merit and public goods to the market. It has an uninhibited consumption of demerit goods. Because of negligible intervention of the government, this economy has no reflection of the social costs, effects and benefits. This economy is an ideal solution for an ideal world. However, there exist imperfections and faults in the world. As a result, the forces in this economy end up harming the poor class. The mentioned advantages are normally the disadvantages of the government of a country with a free market economy.

Among countries that have experienced a free market is Chile and USA. Chile has a free market economy. A high level of foreign trade and a reputation of strong financial institutions are proof.