Advantages and Disadvantages of Free Market Economy Essay

700 Words Nov 11th, 2012 3 Pages
THE ADVANTAGES OF FREE MARKET ( DISADVANTAGES OF COMMAND ECONOMY )

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
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But there may be a problem with merit goods and demerit goods. Merit goods, like health 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 poor might not be able to afford this, and some people might simply decide not to bother if they feel particularly healthy. Demerit goods are bad for you. Government should ban class A drugs, and tax 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 course, the advantage of a command economy is that the strong government will make sure that public and merit goods are consumed at the right levels 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 production processes that they chose are as environmentally friendly as possible. They should be able to make sure that the level 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 still doesn't cover the problems caused by the exhaust emissions (in health as well as the

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