A system whereby individuals control most resources because they are the ones who own these resources which are owed through market transactions that are voluntarily acquired and overseen by both supply and demand interaction. The supply entails capital, labor, and natural resources. On the other hand, demand is characterized by businesses, government and finally the consumers. This system involves individuals swapping resources, which may include currency, for other resources like properties or services, these transactions take place in the market on a voluntary basis. The resource exchange value is dependent on two variables which are the scarcity of the resource and their demand. The risks and profits that individuals make determine the economic development and growth of the market-based economy. This market system is just like the other economic systems has its advantages and disadvantages, and it is used by many countries a good example is the United States of America.

Market-based economy comes with several advantages which include; the market is flooded with goods and services of different varieties. The reason why the market is being characterized by a variety of goods and services is that the different businesses strive to make themselves unique and to appeal to the market (Grimsley, n.d.). The market-based economic system boosts the efficiency of many companies; this is as a result of the stiff competition between these companies hence making them strategize on ways of lowering their cost (Ollman, 2016). This economic system reduced the state’s bureaucracy powers in terms of size, cost and power this is a result of private enterprises taking control of most activities that were under the public sector (Beck & Levine, 2002).

The other advantage of this economic system is that individuals rapidly acquire not only knowledge but also both technical and social skills that they require to function is the market-based economy. The market-based economy plays a major role in making people more hardworking; this is because of the stiff competition that characterizes this economic system and also the fear of losing their employment (Beck & Levine, 2002). The market-based economy system attracts foreign investors since most investors will want to make profits something that the market-based economy system cultivates by creating opportunities for generating profits (Ollman, 2016)

The market-based economy provides production forces which include the people who produce the merchandise that satisfies other people’s needs with an opportunity to develop rapidly. The final advantage that market-based economy presents is that there is a greater variety of merchandise in the market hence whoever has enough money can willingly select what they feel is best for them (Demirgüç-Kunt & Maksimovic, 2002).

The market-based economy also has its other side of the coin which involves its demerits.  There are several of disadvantages associated with this system which include; major sectors that people depend on such as both the public education and public health sectors get little funding. The reason for this diverted investment priorities is that the market-based economy advocates for investing in sectors that generate the most profits other than sectors that people need for their survival (Xiao, 2011). In the market-based economy system employees are at the mercy of their employers. As the employees put all their efforts in their work, they do they end up being paid way less. On the other hand, all the profits earned due to the employee’s hard work is taken by the employers. The stiff competition that the market-based economic system creates gives the employers an opportunity to increase their employee exploitation (Levine, 2002).

The market-based economy system leads to massive unemployment. As the companies strive to be more efficient with the minimum cost possible, they turn to technology whereby they use computers and robots to replace most workers hence saving on the wages that they would have used to pay the laid-off workers (Ollman, 2016). The market-based economic system also negatively affects society in terms of finances. The system increases the gap between the poor and the rich hence resulting in the rich feeling as if they are better people and look down upon the poor. On the other hand, the poor view the rich as mighty but still develop hatred towards them (Ollman, 2016). The system favoring the wealthy it makes them practice inappropriate political influence and use this influence to earn more wealth (Levine, 2002).

According to Ollman, market-based economic systems play a major role in catalyzing economic crimes. Individuals start acquiring money illegally to get wealthier and more powerful (Ollman, 2016). The market-based economy system also affects the amount of not only the social benefits but also the welfare that people receive; this is because when the benefits are increased, it will make the rich to get fewer profits. (Levine, 2002). The profit orientation of the market-based economic system makes the involved industries to pollute the environment this is because, the industry owners will end up using more money in their efforts to treat their waste before releasing it to the environment hence this would lead to reduced profits (Levine, 2002).

The market-based economy system is beneficial when a country needs to develop economically rapidly. However, with the loopholes that it has it may do more harm than good to a country’s economy. The good news is that all the disadvantages can be catered for when the country makes laws that will control how this system works, and make sure that they enforced with no discrimination.




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Beck, T., & Levine, R. (2002). Industry growth and capital allocation: does having a market- or bank-based system matter? Journal of Financial Economics, 64(2), 147-180. https://doi.org/10.1016/S0304-405X(02)00074-0.

Demirgüç-Kunt, A., & Maksimovic, V. (2002). Funding growth in bank-based and market-based financial systems: evidence from firm-level data. Journal of Financial Economics, 65(3), 337-363. https://doi.org/10.1016/S0304-405X(02)00145-9.

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