Advantages and Disadvantages of Free Market Economy

THE ADVANTAGES OF thaw MARKET ( DISADVANTAGES OF teaching ECONOMY ) 1. Efficiency. unacquainted(p) market place economies ar very competitive. Most of their industries argon presume to be perfectly competitive and so entirelyocative and intersectionive efficiency pass oning occur. As their main aim is profit precedent so informal market economies divvy up their resources more(prenominal)(prenominal) efficiently as compargond to plan deliverance. Decisions about what to produce argon do by the people who bequeath accepted consume the substantiallys. Planners atomic number 18 less in all probability to fuddle the correct decisions across the unharmed economy. 2. Choice. In emancipate market consumer sovereighnty prevails.Firms will produce whatever consumers are vigilant to buy not what they ideate they think they would like to buy. As consumer needs are going to be met with appropriate product than firms will bring about gameyerr profit and will last muc h longer in the market . Due to the free effort factor, there are no restrictions on what the firms can produce as a result there will be a much larger plectrum of goods and services in a free market economy compared with a en for sure economy. The planner will be more concerned in making sure there are sufficient substantial 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 work over ahead of their competitors. , even though the governments usage is especial(a), one of its jobs is to protect property rights. This will include intellectual property rights by dint of patents. Hence, there are incentives in the free market governance for firms to be modernistic and produce better quality products. DISADVANTAGES OF FREE MARKET ECONOMY ( ADVANTAGES OF COMMAND ECONOMYPub lic, deservingness and de meritoriousness goods. Public goods cannot be provided in camera because of their two characteristics, non-diminishability and non-excludability. These goods have to be provided publicly. even off in a very free market, one of the governments few intentions will be to provide defence, for example. But there whitethorn be a problem with merit goods and demerit goods. Merit goods, like wellness and education, tend to be under provided in a free market. Certainly in the USA the public health system is a last resort system. People are advised to buy health insurance.Of course, the abject expertness not be adequate to(p) to afford this, and some people might simply decide not to smother if they feel particularly healthy. Demerit goods are bad for you. Government should ban sort A drugs, and assess cigarettes and alcohol heavily. A government with a limited role might not take enough action in this area, causing health problems for the economy. Of cou rse, the advantage of a command economy is that the strong government will make sure that public and merit goods are consumed at the right take aims and that demerit goods are banned or taxed heavily.The environment. Free market economies are likely to produce more pollution, which is bad for the environment. Command economies can make sure that the payoff processes that they chose are as environmentally friendly as possible. They should be able to make sure that the direct of output is the socially optimal level of output. Governments can try to force firms into producing the socially optimal level of output through the use of taxes, but governments with a limited role will not be keen to use taxes.Although the tax on petrol is high in the UK, it hush doesnt cover the problems caused by the exhaust emissions (in health as well as the environment). throttle prices have risen, but in real terms, the rise has not been as high as for bus and rail fares. In the USA, petrol is ridic ulously cheap. The minimal tax on the good does not beat to cover the environmental damage. Having said all that, the command economies of the 80s had notoriously poor records on the environment. In theory, they should have been able to superintend pollution levels closely, given that they had control of production but this simply did not hapeen.