Market-economy?
What problems does this type of system cause?
What can be done to solve the problems?
Answer:
A 'market economy' is one where market forces determine production (what, how much and at what price); that is where there is no (or minimal) inference to demand & supply.
In reality there are no real 'market economies', governments interfere in most markets through ownership, laws and regulations.
The 'science' of economics deals with determining the most efficient way to allocate resources, in order to maximise utility (which is the benefit that comes about from production to participants in the economy).
Therefore, the pros and cons of a market economy should be thought about in this context. One school of thought says that markets are the most efficient at distributing resources in an economy, as whoever is willing to pay the most for anything will get it. That economic agent (people, companies etc...) will be behaving to maximise their own utility, therefore they will bid a higher price for something as long as the cost of the resource is less than the utility that it will generate.
Again, in reality this is not exactly correct. Firstly people (economic agents) can not always accurately gauge how to maximise their utility, it is very difficult in a complex economy. Secondly, and this is far more important, a free market may generate efficient but unwanted outcomes if unchecked (e.g. exploitation of labour, pollution, corporate crime), therefore governments need to impose regulation and laws. The government's role should be to regulate to the point that allows a balance between efficient resource allocation and socially desirable outcomes- again, it is extremely difficult to measure where this balance and to keep this balance.
Books have been written to answer your questions, yet some are not satisfied by them. I do not think your questions can be answered in a few words, but I will try.
A market-oriented economy is one where the government keeps the police, the courts, the armed forces, and little else. Economic decisions are left to individual citizens.
The main benefit is that it works. Any reasonable alternative has been tried, and it always runs into problems. Some people adopt the market economy not because they are convinced of the virtues, but because they see no realistic alternative.
There are several problems. Whether to see a situation as a problem, or how bad a condition is it, is something of a judgment call. A solution is government intervention.
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