The most important virtue of a market economy is efficiency when it comes to the use of resources, capital, and labour. The main goal of the efficient use of the three is for the market to supply the demand for products and services. And this can only be achieved if ideal conditions are in existence. These are: a) competitors that cannot dictate prices; b) access to labour and capital; 3) the customers must know about the prices and the products that are available in the market; and 4) producers must have an idea what the market demands.
Aside from the existence of these conditions, there must also be the freedom to choose. Every participant of the market economy must have this freedom. They must be able to choose what they want and refuse what they do not want. In every transaction each party must realize that they have chosen the best. In other words the transaction that they entered into must be mutually beneficial.
Based on this discussion about the ideal features of an ideal market economy it can also be argued that advertising is an important component because the consumers must know what is available in the market. They must know the features of the products and what is included in the services sold by businessmen.
It is only after they are made aware of these products that they can make a decision which product and service to buy or patronise. However, experts in the field of economics are saying that advertising can have both a negative and positive impact to a market economy.
On one side they argue that advertising create demand when there should have been no demand and this would increase the price of goods that are in limited supply. At the same time advertising can create brand loyalty and a successful ad campaign will make the consumers believe that there is no other product that is much better than what they currently use. This made others to say that this blocks the entry of other competitors and since competition is needed to create an efficient economy then this is a problem.
Those on the other side made their counter-argument that advertising is good for the market economy because it pressures the brand leader to maintain high-quality or else their customers will buy the products produced by their competitor. They also add that advertising’s main purpose is to inform consumers and this is good for the economy.
And so, in order to resolve the issue many are saying that advertising must be allowed to continue only with one condition and it is for the producers to make truthful claims about their products. There are even those who said that this must be regulated – that no one should be allowed to create an ad that will make consumers use products or services that will harm them.
In order therefore to have an ideal market economy where the needs of the consumers are met while the producers or entrepreneurs make money there is a need to have an efficient use of resource, capital, and labour. There must also be advertising because the consumers should know what is available in the market. However, advertising can be good or bad depending on how producers use it. If they use it to inform then it is good but if they use it to deceive then it is bad.