Free Market Economy Essay Example | Topics and Well Written Essays - 1250 words

Free Market Economy - Essay ExampleThe fact that a informal commercialise rescue operates automatically is one of its major advantages. Moreover, when firms, consumers and workers comply their own self interest through buying and selling in competitive markets, it helps in minimizing the central economic problem of scarcity, by encouraging the in force(p) use of resources (Lipsey 2003). In an actual scenario, however, markets fail to achieve maximum efficiency in the allocation of scarce resources resulting in inequality and unfavorable externalities therefore governments expression it necessary to intervene thus, in practice, perfect free market economies do not exist.Even in countries like USA, Germany and France, which atomic number 18 considered to be practicing free market to a great extent, there argon many areas that are in governments control. For example, in USA, there are laws proposed to verify illegal deal place practices. They also have a government department c alled the FDA (Food and Drug Administration) that ensures all consumer products that are taken in to the body are toxic free.There are number of reasons as to why a free market ascends level of inequality and inefficiency in the economy. Firstly, a perfectly performing footing system, as the quality in a free market, does not provide for the issue of an ethical income distribution. In such a system, the limited supplies of goods and services are rationed out to those who can afford it. In other words, the scarce resources are usually diverted to the production of luxuries for the rich before an adequate output of commodities for the poor is produced. In addition, essential goods and services that are socially desirable may not be produced in sufficient amount under the price system because they are not profit yielding. These goods and services include health, education, defence, lighting, etc. This is the reason why the state provides, in most countries, for what are considered to be basic needs. Furthermore, a free market economy fails to consider all the costs and benefits associated with the production and consumption of commodities. Since they are profit motivated, producers tend to ignore the costs they impose on caller as a result of their activities (Begg 1997). In this kind of economy, there is limited competition between firms. A few giant firms may control an industry, in such a case consumer sovereignty is affected the bargaining position of consumers is weakened considerably while the sellers position is enhances resulting in higher prices and restricted output. wish of competition and high profits also tend to reduce the incentive for firms to be efficient and resourceful. Due to the imperfection in market mechanism, market economy tends to further increase the disparities between people, that is, those with index number and property gain at the expense of those without it. It also, due to its self interested behavior, tends to encourage gree d, materialism and the acquisition of power (Sloman 1997). In my opinion, an economy should use the market mechanism to some extent and allow a certain degree of government intervention. Such economies are called blend economies and all real world economies are a mixture of the two systems. Such a system proves beneficial for all the parties as it gives everyone the freedom to involve and produce while maintaining equality in the economy. 2.1 According to demand and supply analysis, there is an inverse relationship between the price and quantity demanded for a product. When the price for a product is too high, the quantity demanded eventually falls. Likewise, when price is low, quantity demanded increases. The movement along the demand curve is