1.3 Advantages and disadvantages of a market economy What is needed to produce? Profitable goods are produced, harmful ones are not produced.
How to produce? It is necessary to produce in enterprises based on new equipment and technology.
How much production is needed? It is produced in quantities that require economic resources.
Who needs production? Production is organized taking into account the needs of certain segments of the population (high, middle and low-income).
Can the economy adapt to changes? This takes into account the degree to which the existing economic system can adapt to the environment of a market economy.
Profitability or loss is determined by comparing the total revenue of the enterprise with all its expenses.
Figure 4. Determination of profit or loss5 The advantages of a market economy are based on the above analysis, three of which are noteworthy. These are:
1. Efficiency of resource allocation. The market system facilitates the efficient allocation of resources. Its essence is that a competitive market system directs resources to the production of goods and services that society needs most. It requires more efficient ways of combining resources for production and the use of new, more efficient technologies in production. In short, the market system manages self-interest in such a way that it ensures that society produces the goods it needs from the resources available to it at the level required.
2. Freedom. One of the important advantages of the market economy system is that it prioritizes the role of personal freedom. One of the main problems of a market economy is the harmonization and organization of economic activities of many individuals and enterprises. There are two ways to do this. One is the use of decentralization and coercion; the second is voluntary cooperation through a market system tool. Only a market system can harmonize economic activity without forcing it. A market economy demonstrates entrepreneurship and freedom of choice, especially on this basis it succeeds.
3. Another advantage of a market economy is that everyone, businesses, firms and corporations are constantly working and researching. Because homelessness, procrastination, carelessness can lead to the destruction of any economic system. Individuals and legal entities strive to withstand competition and ensure continuous profit. As a result, the market economy mobilizes millions of people, freeing them from the mood of dependency.
The paradox of a market economy is that it allows and even encourages its main control mechanism - the weakening of competition.
The paradox of the market economy is that the market economy allows and even encourages the weakening of its main control mechanism - competition. In such an economy, there are two main sources of weakening competition.
1) In a free market economy, entrepreneurs seek to free themselves from the limited path of competition in the pursuit of profit and in the pursuit of improving their economic position. The merger of firms, the collusion of companies, the brutal competition - all this leads to a weakening of competition and a decrease in its regulatory impact.
2) The development of technology that is stimulated by the market system also leads to a weakening of competition. The latest technology is usually:
a) the use of a very large amount of real capital;
b) large markets;
c) the composition of a complex, centralized and rigidly integrated market;
d) requires rich and reliable sources of raw materials.
In addition to the main contradictions of the market economy, there are the following shortcomings or disadvantages:
- Lack of a mechanism to protect the environment from the effects of production and other activities;
- inability to maintain non-renewable resources;
- Lack of employment guarantees;
- Lack of support for the development of fundamental and applied research in science;
- instability of development and the presence of declining production and inflation.
