Advantages and Disadvantages of Free Market Economy

THE ADVANTAGES OF FREE grocery store ( DISADVANTAGES OF COMMAND ECONOMY ) 1. Efficiency. free market economies argon very competitive. Most of their industries are assumed to be perfectly competitive and so allocative and productive efficiency volition occur. As their main aim is profits motive so free market economies allocate their resources more efficiently as compared to planned economy. Decisions roughly what to give are made by the pot who go away actually consume the goods. Planners are slight 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 needfully are going to be met with appropriate product than firms will make higherr profit and will go away much longer in the market . Due to the free enterp rising factor, in that location are no restrictions on what the firms can pr oduce as a result in that location will be a much larger choice of goods and services in a free market economy compared with a overleap 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 postulate from. 3. Innovation. Firms will always be looking to produce something new to get ahead of their competitors. , even though the governments role is bound, 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 persona products. DISADVANTAGES OF FREE MARKET ECONOMY ( ADVANTAGES OF COMMAND ECONOMYPublic, deserve and fracture goods. Public goods cannot be provided privately because of their both characteristics, non-diminishab ility and non-excludability. These goods have to be provided publicly. Even in a very free market, one of the governments few roles will be to provide defence, for example. 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 informed 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 severe 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 vantage 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 product is the socially optimal level of sidetrack. 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 subtle to use taxes.Although the tax on petrol is high in the UK, it still doesnt cover the problems caused by the obliterate emissions (in health as well as the environment). Petrol 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 ridiculously cheap. The minimum tax on the good does not begin to cover the environmental damage. Having said all that, the command economies of the 80s had notoriously poor records on t he environment. In theory, they should have been able to monitor pollution levels closely, given that they had defend of production but this simply did not hapeen.