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dcb Miami FL

Advantages:

(1) The market gives producers an incentive to produce goods that consumers want.

(2) The market provides an incentive to acquire useful skills.

(3) The price system encourages producers and consumers to conserve scarce resources.

(4) Competition pushes businesses to be efficient: keeping costs down and production high.

(5) The market system involves a high degree of economic freedom.

Disadvantages:

(1) A private market economy may be quite unstable (unemployment, inflation, growth)

(2) Business may simply satisfy the wants they have created through advertising.

(3) Prices may give false or inadequate signals to producers and consumers (externalities, like pollution).

(4) Markets just do not work in some areas (public goods, such as national defense).

(5) Monopolistic industries may restrict output and drive up prices.

(6) Market economies tend to produce a skewed distribution of income (large gap between the rich and the poor).

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12y ago
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Wiki User

9y ago

One advantage of price mechanisms is the fact that they encourage the price of products to match market needs. With price mechanisms, businesses can't simply adjust their prices to make a profit.

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13y ago

market failure.

unable to supply merit goods

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Q: What are the disadvantages of price mechanism?
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