Economics for Business and Management - Essay Example

eate irregularities such as economic slumps are caused because of government trade restrictions, excessive power of trade unions and monetary policies of governments. The French economist J.B. was a prominent support of market system and in the early nineteenth century he argued, “Every seller brings a buyer to market”, which means supply establishes its own demand (The Socialist Party, 1997). Four major factors can determine how effectively market system can work. These factors include the profit motive, availability of information to producers and consumers, accurate pricing and ease in distributing resources (Bized).

Free market system has the tendency to allocate resources where the most profit can be generated because profit generation is the primary motive of market system and the system naturally explores the areas which can maximise the profits. Moreover, supporters of market system argue that price mechanism is the best way for the efficient allocation of limited resources. McConnell, Brue and Flynn (2009) have identified three merits of market system which attracts the support of people and make this system as the best way to improve investment climate.

First, the efficient allocation of resources in the market system is possible because this system encourages the production of products most needed by the society. This system encourages the adoption of techniques which are more efficient from production point-of-view and also promotes the adoption of latest techniques. Second, the three skills promoted by market system include hard work, acquisition and innovation. Third, market system gives personal freedom rather than central planning which encourages self-interest of entrepreneurs.

Various examples in the real world economy justify the beliefs of the supporters of market system. Soviet Russia and various command economies have incorporated various reforms such as private ownership to reduce government control and central planning. Even the