Q:

What are the advantages and disadvantages of the price system?

A:

Quick Answer

According to resources on the Pierce College website, the price or market system creates advantages of economic freedom. It also lowers costs. The disadvantages include instability, monopolistic control and income inequality.

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Full Answer

According to New York University class resources, a market economy has seven characteristics: people purchase what they demand, money is a necessity, people are forced to sell items for money, firms maximize profit above social needs, money commands discipline over the wealthy, scarce goods become rationed and labor is compensated. From these characteristics come several positive and negative realities.

The cited advantages are expanded to include increased competition, increased foreign investment, more consumer goods and increases in technical skills. Although, the disadvantages listed by NYU read much longer. These include growing unemployment, unequal political influence, increasing environmental destruction, egotistical attitudes, periodic crises and reduced social benefits. NYU also states that it is impossible for a market economy to exist without flaws, as both theoretical and empirical evidence prove against it. Additionally, experiencing economic growth or loss does not eliminate either positive or negative realities, but rather makes them appear smaller relative to their counterpart.

Yet, as Investopedia notes, statements containing subjective opinions (such as the price system) are considered normative economics in contrast to the fact-based characteristic of positive economics.

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