Hello friends Summarized! In this article we will discuss about the market economy system. What is a market economic system? How does a market economy system solve its economic problems? What are the advantages and disadvantages of a market economy system? Come on, see the explanation below!
Market Economy System, How to Solve Economic Problems
Definition of Market Economic System
The market economic system is an economic system that relies on bargaining power to solve problems. In a market economy system, there is no government intervention in regulating economic activity. All economic decisions are left to producers and consumers who interact in the market.
The market economy system is based on the following principles:
Individual freedom. Every individual has the right to choose what to produce, how to produce it, and for whom to produce it. Every individual also has the right to consume goods and services according to his preferences and abilities.
Perfect competition. The market is open to all producers and consumers who wish to participate. There is no monopoly or oligopoly that can dominate the market. Prices are determined by demand and supply that adjust to each other.
Resource allocation efficiency. Resources are used optimally to maximize consumer satisfaction and producer profits. No resources are wasted or unproductive.
The way the market economy system solves its economic problems
Every country must face basic economic problems, namely what to produce, how to produce it, and for whom to produce it. The market economy system solves its economic problems in the following ways:
What to produce? The types and quantities of goods and services produced are determined by consumer demand in the market. Producers will produce goods and services that are most desirable and profitable for them. Consumers will buy goods and services that best suit their needs and abilities.
How to produce it? The way of production is determined by the available technology and minimal production costs. Producers will use the most efficient and cost-effective production methods to produce good quality goods and services. Consumers will choose the cheapest and highest quality goods and services on the market.
Who is the product for? Distribution of production results is determined by income and prices in the market. Producers will sell goods and services to consumers who are willing to pay the highest price. Consumers will get goods and services according to their income and prices they can afford.
Advantages and Disadvantages of the Market Economy System
The market economic system has several advantages and disadvantages, namely:
Excess
Encourage innovation and creativity. Producers and consumers have incentives to create new and better goods and services to meet market needs and tastes.
Increase efficiency and productivity. Producers and consumers use resources optimally to produce goods and services at low cost and high quality.
Provides choice and freedom. Producers and consumers have the right to choose what to produce, how to produce it, and for whom to produce according to their preferences and abilities.
Lack
It creates inequality and injustice. Producers and consumers who have more capital, income and information will dominate the market and get more profit than others. Meanwhile, producers and consumers who are less fortunate will be left behind and suffer losses.
Causing negative externalities. Producers and consumers do not pay attention to the social and environmental impacts of their economic activities. For example, air pollution, global warming, damage to natural resources, etc.
Ignore the public interest. Producers and consumers do not provide public or merit goods and services, such as defence, education, health, etc. This is because these goods and services are not economically profitable or difficult to provide effectively by the market.
One example of a country implementing a market economy system is the United States (US). The US has a very dynamic and competitive free market. The US government only plays a supervisory and law enforcement role to maintain stability and fairness in the market.
Here are some examples of cases of the market economy system in the US:
Apple is one of the largest smartphone manufacturers in the world. Apple produces iPhones using advanced technology and attractive designs. Apple sells iPhones at high prices in the market because many consumers want their products. Apple also competes with other smartphone manufacturers such as Samsung, Huawei and Xiaomi.
Starbucks is one of the largest coffee companies in the world. Starbucks produces coffee using quality coffee beans and various flavors. Starbucks sells coffee at a premium in the market because many consumers like the product. Starbucks also competes with other coffee companies such as Dunkin Donuts, McDonald’s, and Tim Hortons.
Walmart is one of the largest retail companies in the world. Walmart produces and sells a wide variety of goods and services at low prices in the marketplace. Walmart offers consumers the convenience and benefits of shopping at its stores. Walmart also competes with other retail companies such as Amazon, Target and Costco.
Conclusion
The market economic system is an economic system that relies on bargaining power to solve problems. In a market economy system, there is no government intervention in regulating economic activity. All economic decisions are left to producers and consumers who interact in the market.
The market economy system has several advantages, such as encouraging innovation and creativity, increasing efficiency and productivity, and providing choice and freedom. However, the market economy system also has several drawbacks, such as causing inequality and injustice, causing negative externalities, and ignoring public interests.
Thus the article about the market economic system, I hope it is useful and adds to your insight. If you have questions or feedback regarding this article, please write in the comments column below. Thank You!
