What market system is a profit and loss system?


Quick Answer

A free-market economy will generate a profit and loss until supply and demand are met at an equilibrium. Whenever there is an imbalance between the supply and demand at a certain price point, there is an economic profit or loss.

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Full Answer

If an industry or business sees a profit, competition will increase as well as production of the good. This drives prices down, and the economy then finds an equilibrium and no longer sees a profit. If the market sees a loss, then competition and supply decreases ultimately driving up prices and eradicating the loss. Other market systems, like a monopoly or communist market, would not see economic profits and losses moving towards an equilibrium.

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