Examine the Arguments in Favour of a Free Market System of Resource Allocation
Examine the arguments in favour of a free market system of resource allocation
“The basic economic problem for every society is about scarcity and choice since there are only a limited amount of resources available to produce the unlimited amount of goods and services that we all we need and desire” (Lawrence, J. Stoddard, S. & Copp, A.) .
All societies face the problem of having to decide what good and services to produce, how best to produce those goods and services, and who is to receive those goods and services.
There are three different types of economic systems for allocating resources, a pure command economy, a mixed economy and free market economy as said by Griffiths & Wall (2011)
A pure command economy, in which “government not markets allocate the scarce resources of land, labour and capital” (Griffiths & Wall, 2011, p.33). Plans are drawn up by the government and prices are determined by the government.
A mixed economy, which uses both “markets and government intervention to allocate the scarce resources of land, labour and capital” (Griffiths & Wall, 2011, p.34).
A free market economy, in which “markets alone are used to allocate scarce resources” (Griffiths & Wall, 2011, p.34). All markets are unregulated by any parties other than the market participants. The government plays a neutral role in this type of economy, neither limiting nor promoting it.
Prices are determined by supply and demand and the means of production are under private control. Although the role of the government is limited they are needed to simply “provide the infrastructure needed to allow markets to work” (Griffiths & Wall, 2011, p.34. Free markets are very competitive
The main advantages of having a free market economy are; efficiency, choice, innovation and a higher economic growth rate.
Efficiency. As said before, free market economies are very competitive. Most of the industries involved in a free market system are assumed to be flawlessly competitive
“The basic economic problem for every society is about scarcity and choice since there are only a limited amount of resources available to produce the unlimited amount of goods and services that we all we need and desire” (Lawrence, J. Stoddard, S. & Copp, A.) .
All societies face the problem of having to decide what good and services to produce, how best to produce those goods and services, and who is to receive those goods and services.
There are three different types of economic systems for allocating resources, a pure command economy, a mixed economy and free market economy as said by Griffiths & Wall (2011)
A pure command economy, in which “government not markets allocate the scarce resources of land, labour and capital” (Griffiths & Wall, 2011, p.33). Plans are drawn up by the government and prices are determined by the government.
A mixed economy, which uses both “markets and government intervention to allocate the scarce resources of land, labour and capital” (Griffiths & Wall, 2011, p.34).
A free market economy, in which “markets alone are used to allocate scarce resources” (Griffiths & Wall, 2011, p.34). All markets are unregulated by any parties other than the market participants. The government plays a neutral role in this type of economy, neither limiting nor promoting it.
Prices are determined by supply and demand and the means of production are under private control. Although the role of the government is limited they are needed to simply “provide the infrastructure needed to allow markets to work” (Griffiths & Wall, 2011, p.34. Free markets are very competitive
The main advantages of having a free market economy are; efficiency, choice, innovation and a higher economic growth rate.
Efficiency. As said before, free market economies are very competitive. Most of the industries involved in a free market system are assumed to be flawlessly competitive
References: Lawrence, J. Stoddard, S. & Copp, A., 2009 AQA AS Economics. Cheltnham: Nelson Thornes Lawrence, J & Stoddard, S., 2009, AQA A2 Economics Wall, S & Griffiths, A., 2011. Economics for Business & Management. 3rd ed. Harlow: Pearson. CIA World Fact Book, Korea GDP, November 2011 [Accessed 15th November 2011] Google Public Data Explorer, GDP Growth Rates November , 2011 [Accessed November 19th 2011] Tutor 2 U, Efficiency, 2010, [online], available at: http://tutor2u.net/economics/content/topics/competition/efficiency.htm Lawrence, J & Stoddard, S., 2009, AQA A2 Economics. Cheltenham: Nelson Thornes. Lawrence, J Wall, S & Griffiths, A., 2011. Economics for Business & Management. 3rd ed. Harlow: Pearson. Economics Online, Competitive Markets 2009, [online] available at: http://economicsonline.co.uk/Competitive_markets/Economic_systems.html