There are also several disadvantages that a free-market economy can bring, with a huge rich-poor divide being one of them. A command/planned economy is the direct opposite to the free-market economy and it tries to overcome the disadvantages of a free-market economy, it is the thought to be ideal economic system in a communist utopia.
Under such economies, the gap between the wealthy and the poor will be less obvious, the public will be served on a wider scale, and there will be unemployment or overproduction when compared to a free-market economy. People are able to benefit more as a whole but they may also be liable to be affected by the many disadvantages within the planned economic system. This includes suffering from a shortage or poor-quality of goods and services, and this is because it is the government who takes charge throughout every stage of the production process and what the government wanted does not resemble what the general public wanted. Another reason is that the tightly regulated firms have no initiative to do a good job because they were restricted to making profit.
Being the opposite of a free-market economy, it is the government (and not private corporations) who decides on the allocation of resources and it is them who answer the basic economic problem. Firms in this type of economic system will produce solely on the orders of the government and what they want, this is contrasting because production is based on supply and demand, under the private sector in a free-market economy. Firms are under strict regulation and, they cannot produce goods for individual profit, compared with the large amount of flexibility within a free-market economy. Furthermore, goods in a planned economy are not produced to the needs of the people, but the government, which is contradictory to the free-market economy.
Economies that do not want to go either extreme may choose to obtain a mixed economy, they try to combine a system in between which shares the advantages of both the free-market and planned economy. A mixed economy tries to obtain the advantages of both the free-market and planned economies by eliminating the disadvantages of a free-market economy by adding successful and effective elements of the planned economy, such as some government intrusion and interference. An example of this is that the government will provide public and merit goods by collecting tax from the public, and relieve unemployment by creating job opportunities.
However, a system in between doesn’t mean that it is the ideal economic system. I think that the disadvantages of a mixed economy depend on which extreme it tends to lean towards. For example, a disadvantage of a mixed economy that is more close to a planned economy might be the high tax rates that the people receive or the lack of economic growth, but if it is an economy that is considered to be more free-market, there may be the need for more government funding to areas such as social welfare.
There are also some disadvantages of a mixed economy in general. Businessmen will have their own markets for production because there is some government activity within the economy, they might also find it hard to pay the taxes, which are higher to those of a free-market economy. In a long term, mixed economies usually have more government intervention, some of which are unnecessary, this may cause the economy fluctuate as a result from time to time because of the lack of coordination between both the private and public sector due to the monopolies of both the government and corporations.