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To what extent do you agree with free market economies being more effective than a mixed economy - Essay Example

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Free Market Economy versus Mixed Market Economy Definition A market economy or a free market economy is defined as a social institution where the main economic problem of the commodities to produce, for whom to produce is solved by the firms and consumers…
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To what extent do you agree with free market economies being more effective than a mixed economy
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Download file to see previous pages All individuals act on their behalf; however the actions are aimed at satisfying consumer needs. The free market economy is controlled by a price mechanism where the prices of goods and services are not determined by the government (Kates, 2011:34). They are determined by the interchange between the forces of demand and supply whereby price acts as an indicator for the suppliers to decrease or increase supply so as to reach an equilibrium between the forces of demand and supply and the best allocation of resources. Income and resources are distributed and allocated efficiently by using the price mechanism. A free market economy is an economic system that is not influenced by the government or other political forces (Kates, 2011:34). The rate of growth in such an economy relies on the level of consumer activity that is connected to the consumers’ purchases. This means that economic growth is possible in an economy that is not controlled by the government. Free market economies are closely linked with capitalism in the modern-day usage and popular culture. Cooperative members, market socialists and supporters of profit sharing support free markets. Why is a free market economy better than mixed economy? A free market economy is better than a mixed economy in various ways. ...
Secondly, free market economies are flexible and therefore adjust freely to change. If there is a change in demand of a certain good or service in the market, companies can increase their production to meet the increased demand in the market. Conversely, in a mixed market economy, the government regulates the quantity that is produced and supplied in the market. There is increased competition among the major producers in the company. This mounts increasing pressure on the producers to improve their products and lower their prices so as to attract a higher number of consumers (Sirico, 2012:14). On the contrary, in a mixed economy a central authority such as the state or the government regulates the quality of goods and services. This means that the competition in the prices of goods and services is minimal hence consumers do not benefit in the long-run. In addition, increased competition among the producers encourages production using the latest technology (Kates, 2011:34). In other words, increased competition in the market leads to increased innovation that positively contributes to productivity. A free market economy encourages rational self-interest. People have more freedom to undertake actions that they want and to buy and sell what they want. Consumers have more freedom to produce and sell what they want with minimal government interference. However, in a mixed economy, the government sets the standards to be followed by the producers and consumers. Finally, the consumers determine the success or failure of a products or service in the organisation (Sirico, 2012:14). This means that the consumers have more power to drive the prices of goods and the quantity produced. On the other hand, in a mixed economy, a central planning ...Download file to see next pages Read More
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