Advantages and Disadvantages of Free Market Economy

Topics: Market economy, Mixed economy, Capitalism Pages: 2 (685 words) Published: November 27, 2012

1.Efficiency. free market economies are very competitive. Most of their industries are assumed to be perfectly competitive and so allocative and productive efficiency will occur.As their main aim is profit motive so free market economies allocate their resources more efficiently as compared to planned economy. Decisions about what to produce are made by the people who will actually consume the goods. Planners are less likely to make the correct decisions across the whole economy. 2.Choice.In free market consumer sovereighnty prevails. Firms will produce whatever consumers are prepared to buy not what they think they think they would like to buy.As consumer needs are going to be met with appropriate product than firms will make higherr profit and will last much longer in the market . Due to the free enterprise factor, there are no restrictions on what the firms can produce as a result there will be a much larger choice of goods and services in a free market economy compared with a command economy. The planner will be more concerned in making sure there are enough essential goods to produce the product they want to produce.As firms in free market will be producing different good and services so consumers will have variety of good and sevices to choose from. 3.Innovation. Firms will always be looking to produce something new to get ahead of their competitors. , even though the government's role is limited, one of its jobs is to protect property rights. This will include intellectual property rights through patents. Hence, there are incentives in the free market system for firms to be innovative and produce better quality products. DISADVANTAGES OF FREE MARKET ECONOMY ( ADVANTAGES OF COMMAND ECONOMY

Public, merit and demerit goods.
Public goods cannot be provided privately because of their two characteristics, non-diminishability and non-excludability. These goods have to be provided...
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