Free Market Economy

Question 1

Disadvantages

Answer 1

Inequality – wealthy tend to be able to accumulate greater wealth in free market due to
o The ability to inherit wealth

o Wealthy can pay for better education for their children, giving certain groups of people a better start in life.

• Monopoly power - in a free market, firms with a high market share will be able to set higher prices for consumers
• Under-provision of public goods (e.g. defence and law and order – goods which are non-rivalry and non-excludable)

Question 2

Advantages

Answer 2

• Consumer sovereignty – free market – producers produce what consumers want at a resonable price, gives the consumer more choice
• Absence of bureaucracy – free markets reduce cost, entrepenuers don’t have to wait for governments to tell them what to make. Study demand, research trends to meet consumer needs.

Question 3

What is free market economy

Answer 3

Free market is a type of economy that promotes the production and sale of goods and services, with little to no control or involvement from any government agency

• In a free market firms and households act in self-interest to determine how resources get allocated, what goods get produced and who buys the goods
• Opposite to command economy where central government gets to keep the profits