Market Based Economic System Flashcards, test questions and answers
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What is Market Based Economic System?
A market-based economic system is an economic model in which goods and services are produced and exchanged according to the laws of supply and demand. This type of economy operates on the principle that prices should be determined by individual buyers and sellers, rather than by government regulation or other outside interference. In a market-based economy, businesses respond to changes in demand by adjusting production levels, which affects pricing and wages. This system can also be referred to as capitalism or free-market economics.The primary feature of a market-based economy is its reliance on the forces of supply and demand to determine prices for goods and services. Businesses compete with each other in order to offer products at lower prices than their competitors, while consumers make choices based on what best suits their needs at a particular price point. This dynamic creates an efficient allocation of resources since those who require certain goods or services most desperately will pay more for them than those who do not need them as much. As such, market-based economies are usually characterized by high levels of competition, innovation and efficiency. One major advantage of this type of economic model is that it allows individuals to pursue their own interests without interference from the government or third parties as long as they can afford it within the confines of the law making it ideal for entrepreneurs who wish to start their own businesses without any external oversight or regulation. Furthermore, this system incentivizes hard work since people know that if they work hard enough they may be able to achieve financial success without relying on government assistance or subsidies. However, there are some drawbacks associated with market-based economies as well namely inequality between different groups due to unequal access to resources such as capital or education; environmental degradation due to unchecked consumption; exploitation through unfair labor practices; monopoly formation due to large corporations dominating entire markets; and extreme fluctuations in asset prices due speculation bubbles forming in stock markets left unregulated by governments.