The free market economy is a system that regulates itself based on the principles of supply and demand. There is little or no government control over the way that businesses and customers interact with one another. It is a summary of every voluntary exchange that takes place in that specific environment. Show
A free market approach has several characteristics to consider, including the decentralized and spontaneous order of arrangements in which individuals and households make economic choices. A country’s economy can range from one that is large and transparent to one that is entirely black market based on the legal and political rules that exist. The trademark of a free market economy is an absence of coerced transactions or conditions. Consumers have the right to choose what company provides them with the goods or services they require at any time. Although there isn’t a 100% example of this structure in the world today, it is still imperative to review these free market economy advantages and disadvantages. List of the Advantages of the Free Market Economy1. A free market economy gets rid of a significant amount of red tape. This advantage also makes it possible for organizations to put extra money toward other endeavors, including new research and development opportunities. 2. The free market provides more freedom to innovate. It is up to each company to study consumer demand, popular trends, and basic needs to provide the best value promise possible. This process creates a higher level of competition in each industry, allowing customers to decide who is the best and deserves their money. 3. Customers always drive transactions in a free market economy. When someone receives the choice between two products that offer similar benefits, it is the customer who votes with their purchase to decide which one survives. The consumer also determines the final price point for goods and services in the economy, requiring companies to set prices high enough to make a profit, but not so high that it limits the number of people who are willing to commit money. 4. The free market economy naturally promotes equality. 5. Free market economies regulate themselves naturally. If an organization wants to remain operational in a free market economy, then it must focus on the exact needs of its targeted demographics. Customers always have the opportunity to vote with their checking accounts. 6. A free market economy creates a rising tide that lifts all boats. 7. Individual skills are what drives a free market economy forward. That’s why the free market economy does an excellent job of bringing people together even though everyone is competing with one another to get the biggest share of the available products. 8. Free expression is a natural component of this society. List of the Disadvantages of the Free Market Economy1. Profit is always the motive for success in a free market economy. Even with a partial free market economy in place, we’ve seen numerous examples throughout history of this disadvantage. Companies like WorldCom and Enron attempted to mislead their customers and government regulators, while the incident on Deepwater Horizon proved to be one of the most significant environmental disasters in U.S. history due to cost-cutting measures like the use of sub-standard cement. 2. Market failures can create severe recessions and ongoing economic consequences. The reason for this disadvantage is a lack of control over profit-seeking behavior. Instead of creating investments that provide slow and steady gains, short-term profits are often the priority in a free market economy. Highly-leveraged assets, loose credit, and no government intervention create a higher risk of failure. 3. A free market economy can provide limited product choices. If it is too expensive to send goods or provide services to a rural community, then a free market economy suggests that the best decision is to withdraw from that area. That means there are always communities that will miss out on innovative ideas because they don’t help the bottom line as much. 4. Those who are unable to produce in a free market economy get cast aside. This economy doesn’t provide a social safety net unless there is a process that can make them profitable. 5. A free market economy requires consumption to survive. That’s why the greatest share of wealth accumulation occurs in the top 1% of a free market economy. These are the households that can access their needed resources without worrying about income shortages that arise because only entry-level jobs are available. 6. Equality doesn’t always equate to equal opportunities. Some people are automatically rewarded with success because of their family’s history in the free market economy. A single moment to achieve success isn’t the same as a lifetime of opportunities. 7.
The free market economy alters the priority of governing. Instead of providing resources to families that promote better health and wellness, corporate longevity becomes the top priority of the government. That means it is the worker who takes on the most risk and receives the least amount of rewards. 8. Free market economies promote the idea of monopolization. Once the government sets laws or regulations that forbid the creation of a monopoly, then the society is no longer benefitting from a 100% free market system. 9. If large businesses fail in a free market economy, so does everyone else. This disadvantage is another reason why workers are the ones that take the most risk in this system. Government bailouts might exist in some societies, which is an option not given to the average household. Companies can lay off workers at any time for any reason, focusing only on high-value customers if that’s where their profits exist. 10. The free market system restrains wages instead of encouraging them to
grow. It took over 30 years for the middle class in the United States to see an increase in the value of their salaries. Some households are still earning less today than what was available in the 1980s. That’s why a completely free market system struggles to survive. At some point, only the wealthy can continue moving forward – and eventually, almost all of the wealth gets put into the hands of a designated few people. Conclusion Every economy in the world today is a mixture of freedom and government regulation. History has taught us that going 100% in either direction creates more harm than good. We must find a balance where the needs of a company and those of individuals can come together in profitable ways for everyone. This economy functions upon the laws of supply and demand. The characteristics of private ownership, free choice, and self-interest work to optimize the buying and selling platforms. This process creates high levels of competition, but it can also reduce the amount of choice that is present for the average consumer. Repetition is what primarily defines the advantages and disadvantages of the free market economy. This structure fosters innovation and efficiency, but it also marginalizes those who are unable to maintain appropriate productivity levels. That’s why income inequality tends to occur more often in the economies that use this concept most often. Blog Post Author Credentials What are the advantages and disadvantages of a free enterprise economy?Benefits of a market economy include increased efficiency, production, and innovation. Disadvantages include monopolies, no government intervention, poor working conditions, and unemployment.
What are the benefits of a free enterprise economic system?Free enterprise works because it allows people to do what they do best and trade for the rest. Competition is a driving force of free enterprise, resulting in greater efficiency and lower prices for the consumer. Countries embracing free market principles benefit from a higher standard of living.
What are the disadvantages of the free enterprise system?What are the disadvantages of Free Enterprise Capitalism? Uneven economic growth: sometimes growth is fast and other times it is slow. Growing gaps between rich and poor: rich seem to get richer and poor seem to get poorer. Large “supply-side” tendencies: firms will combine and reduce competition.
What is the disadvantage of free market economy?One disadvantage of a free market economy is that some producers are driven exclusively by their profit motives. Even though the primary goal of any business is to generate profit, such an objective should not be prioritized over the needs of workers and consumers.
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