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It can be argued that the UK has a free market economy. To what extent is this true or do you disagree? Also, explain how you perceive the economy of the UK to be organised in relation to a country like communist China.

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Homework Daniel Isenberg 10P 12th March 2003 It can be argued that the UK has a free market economy. To what extent is this true or do you disagree? Also, explain how you perceive the economy of the UK to be organised in relation to a country like communist China. [40] A free market economic system is employed by Governments, in which people and firms privately own all resources. Hence, all goods and services within the economy are produced by the private sector, with the aim of maximising profit. However, in order to boost profit, the firms must produce in whichever markets are expanding according to consumer demand, highlighting the consumer sovereignty that exists within a free market economy. Within this economic system, in order to purchase a good or service, one has to be in effective demand, i.e. both able and willing to purchase the commodity, meaning some goods will be unattainable for those on a low income. Therefore, if a price is too high, then demand will fall and producers will decrease supply and if the price is low, demand will increase and supply will follow. This is known as the price mechanism of supply and demand, which exists and shows how market forces within a free market solve the problems of what to produce, how to produce it and for whom, in effect determining the allocation of scarce resources. In this way, the free market can rapidly respond to changes in people's wants and produces wide variety of goods and services to meet these varied demands, which are manufactured using techniques, which develop as technology changes, due to the entrepreneurial managers of firms within the free market. ...read more.


However, the USA has a much larger proportion of its industries in the private sector than Britain, such as health and part of the education system, with 5% less of total spending coming from the public sector. Despite this, the USA has nationalised defence, law and order and parts of the transport system, mainly due to the free rider problem that would arise were they privatised. The reasons for the UK's economy lying to the left of that in the USA lie deeper than the political founding of the legislature, but in the country's feudal heritage, in which the monarch relied on taxes from each layer of the hierarchal tree, therefore heavily regulating many goods, in order to maximise State revenue. Also, the sheer age of many of the UK's industries led to their ownership by the Government, who often had to take control in times of war, unlike America, independent only in 1776 and so the establishment of the new Government in an already productive country meant that rivalry in consumption allowed the free market to expand due to vast competition. Neither country has remained static in its economic structure, mainly due to historic circumstances like war, but also due to changes in Government. For example, the Great Depression of the 1930s and the election of the Democrats under Roosevelt in 1933 led to a reforming of the economic system that led to a shift towards the left, with the Government now regulating banks and the stock market, in order to prevent another crash occurring. ...read more.


In 2002 China joined the World Trade Organisation (WTO), which opened its markets to foreign trade and effectively lost the socialist-style economic system, on which the country had previously been based. Ever since 1978 Chinese GDP has risen rapidly, due to international trade and so it is unfair to compare China with Britain as a planned economy, because of its swift shift towards a free market. Despite this, there are few planned economies left in the World, especially ones that are powerful, and China can thank its planned economy for the improvement of social conditions and living standards, brought about by the fairly even distribution of wealth, although many luxury goods are not supplied ot the consumer. To conclude, the UK employs an economic system different to any other country in the World, due to the country's unique heritage, based on feudalism and a constitutional monarchy. Its is clear to say that the UK is not a pure free market economy, as this is only theoretical, but that the country mixes elements of the free market with those of a planned economy to form a mixed system, in which most prices are determined through the interaction of demand and supply, with private firms owning most resources, although the Government often steps in to regulate demerit goods, set taxes and provide certain goods that would not be provided in a pure free market. Therefore, the UK has a free market to as maximum an extent as possible, without the omission of certain merit goods, which the Government intervene to supply. ...read more.

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