Effectiveness of the Free Market Economies over Mixed Economies - Essay Example

? ECONOMIC SYSTEMS s: EFFECTIVENESS OF FREE MARKET ECONOMIES OVER MIXED ECONOMIES The economics system is divided into three; the individuals, the organizations and the institutions. Economics system is the resolving system for the basic economics problem. There are three types of the economics system; planned economy, mixed economy and free market. In planned system the state or the government is everything, every resource is for them, their target is to grow the state economics from their own view of people’s wants, for example North Korea, on the other hand all the resources assign by the public sector with no price technique. The system in mixed economy is mixed between free economy and planned economy. The mixed economy has got five main characters the main actors, motivation, ownership, competition and government, the resources are divided into two, public sector which is the government and the other one is private sector. The public sectors usually believes the public goods for the market, for example United Kingdom and Kuwait is mixed economy. In free market economy the government has no hand in the market. On the other hand the private sector is everything; there is no place for the small market to show up the capital market has got all markets. At the free market the price is high because there is no control from the government on the market and the price is on increase, the market their depend on the consumer, what the consumer ask for, the free market example is United States Of America. Businesses and consumers select the products they will produce or buy in free market economy. In other words, the producers decide on the kind of goods to produce, how they are to be produced and what price to charge on the final goods produced and even what to pay their employees. The choices are made by persons themselves and not the government. Free market economies offer numerous advantages. One of the main advantages is competition. Free market economy allows competition. Competition helps keep prices lower because several companies will be competing for customers. Lower prices are an effective way of attracting and retaining customers. Consumers always have a choice of what business to buy from. This is an advantage of free market economy over a mixed economy. Competition is one of the simple reasons why there are generally so many diverse varieties of goods for consumers to choose from. On the production side of the market, firms making goods which are more popular with consumers can sell them at competitive prices and earn profits. But producers who make uninvited products, or operate unproductively and pay too much to create their products, will suffer losses, eventually, they must either learn to create and compete efficiently making produces customers need at competitive rates, or they will verve out of business. Another effectiveness of free market economies is that companies can fine-tune easily to changes i.e. they don’t have to follow the government procedures when they want to change the kind of products to produce. This is better as opposed as opposed to mixed economies where unsuccessful regulations may paralyze production processes. This can lead to shifting of economic balance. In a mixed economy, the government also decides on the amount of tax to be levied on products which lead to people grumpy about high taxes and their reluctance to pay. The main advantage is that a free market economy enjoys the determination of prices by forces of demand and supply without monopolistic or oligopolistic influences. The role of the state is very limited in determining what goes on in a free market as opposed to mixed market which is controlled by both government and private enterprises. Government regulation stimulates inefficiency. Free market leads to optimal allocation of resources in a country. This would only happen in a state of equilibrium or where the demand and supply are equal and there is a unique price for every commodity in question. In a practical world however rates are never at equilibrium and depend on the market forces. This is a risk to people living below poverty line or those in low income groups. In instances where there is demand shortage, it becomes difficult for these people to pay the high prices. In a mixed economy, the government tends to apportion assets for social welfare instead of items that would profit the economy. This affects business owners since they may not get sufficient resources to produce their products or profit. In free market resources are allocated to more beneficial areas of the economy. Sellers in free market economies are driven by pure self-interest. Firms target at maximizing their profits; consumers are interested in satisfying their needs and private personnel who own factors of production aim at maximizing profit, wages, rent and interest. This is opposed to mixed market where producers tend to lean less towards government control and less towards individual freedom. Sometimes government requirements can put off a business. In a free market economy owners of production means don’t have to deal with a lot of paperwork or bureaucracy to get things done such as getting licenses or for their businesses to be rendered legal. In a mixed economy, the government keeps track record of the company’s profits or daily transactions. As a result, they have to deal with a lot of paperwork and this can be a lot of work to some people. The size, power and cost of the state bureaucracy is correspondingly reduced as various activities that are usually associated with the public sector are taken over by private enterprises. Free market economies attract a large number of both local and foreign investments since government control over the economy is less and there are no restrictions regarding establishment of enterprises and this forms a good opportunity for business owners to generate profits. Investments are effective and essential to any economy since they contribute to money inflow in an economy. In a free market economy Innovation is compensated Producers who are innovative will come up with more efficient methods of production. Innovation of new products will see the needs of consumers in better ways that existing goods and services. This innovation will spread to other challengers so they, too, can be more lucrative. The companies and individuals who are most proficient and innovative will amass more capital. They can capitalize this in other effectual and innovative corporations, giving them a leg up and leading to an overall higher quality of production. (Harper College, Pure Capitalism and the Market System). In a free market economy, goods and services are produced in a very effective way. Most efficient and competitive producers will receive or make more profits as opposed to less efficient and competitively disadvantaged enterprises. This is opposed to mixed markets where government control at times limits production in certain sectors of the economy. REFERENCES: Pollin, Robert. Resurrection of the Rentier, University of Massachusetts: http://www.peri.umass.edu/fileadmin/pdf/other_publication_types/NLR28008.pdf Feasible Socialism: Market or Plan – Or Both: http://www.whatnextjournal.co.uk/Pages/Ratner/Feassoc.html Market; http://economics.about.com/cs/economicsglossary/g/market.htm Free market economy; http://useconomy.about.com/b/2012/08/27/america-is-not-really-a-free-market-economy-why-that-could-be-the-jobs-solution.htm Read More