Merit and Demerit of Free Market

Topics: International trade, Free market, Market economy Pages: 2 (469 words) Published: June 27, 2006
Free market is a market place which supply and demand is unregulated except by the government competition policy, and rights in physical and intellectual property are upheld. There are no artificial barriers put in place by the government to restrict the flow of goods and services between trading nation. Free market economy also as known as Market economy, Free Economy and Free- enterprise Economy.

In the free market economy, firm can improves the efficiency of resource allocation. The more efficient use of resources leads to higher productivity and increasing total domestic output of goods and services. It also increased competition promotes innovative production methods, the use of new technology, marketing and distribution. Beside that, trade liberalization creates losers and winners as resources move to more productive areas of the economy. Employment will increase in exporting industries and workers will be displaced as import competing industries fold in the competitive environment. With free trade many jobs have been created in the society, especially in manufacturing and service industries.

According to the Department of Foreign Affairs and Trade of Australia, free market has benefited to Australia by many ways. Over the past decade Australia's ratios of exports and imports to GDP have each risen from around 15 percent to 20 percent. Beside that, export growth in Australia has been essential to economic growth and job creation. Over 400 000 jobs were created between 1983–84 and 1993-94. According to one study the removal of all tariffs create another 40 000 jobs at 1996.

Although free market has benefits, there is also some demerit in free marker economy. In a free market, developing or new industries may find it difficult to become established in a competitive environment with no short-term protection polices by governments. Beside that, the increased domestic economic instability from international trade cycles, as economies became...
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