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What are the disadvantages of a free economy? How might they be overcome? Would the measures that have been suggested result in a better system than an entirely free market?

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Introduction

What are the disadvantages of a free economy? How might they be overcome? Would the measures that have been suggested result in a better system than an entirely free market? In a free market economy, decisions about resource allocation are made without any central direction but, instead, as a result of innumerable independent decisions taken by individual producers and consumers. A free market economy is one at which where the price is allowed to fluctuate. Price is fluctuated in accordance to demand and supply to get equilibrium. Freedom to move resources around. The price of products is constantly changing due to demand by the consumers and also the supply of goods. Prices go up if consumers are buying a lot of a particular product and prices go down if consumers are not buying a particular product. This is called the price mechanism. A free market is dynamic, the government does not control prices, and there is no government interference. ...read more.

Middle

Making more jobs available could solve this problem of unemployment. Also if employers trained their employees to a more advanced level, if they were to lose their jobs, they could easily find employment elsewhere. Or if the employers do not provide this training, then employees should get training themselves. This would result in a better economy, since unemployment levels will go down, and there are more skilled workers, so goods can be produced quickly and to a higher standard. Another major problem of the free market economy is the monopolisation of companies. If two or more companies who sell the same product merge to form just one company, then there will be less competition between companies in the same industry, which would lead into an increase in price of that particular product. This is one of the examples when consumer demands would not be in total control of the price of a product. If the price rose too much, the demand for that particular product would go down, leading to a surplus of goods. ...read more.

Conclusion

To prevent this problem, wages have to be made constant and the price of goods should not be allowed to fluctuate too much. If the producers cut down on costs, then they could afford to pay more wages. Also if the demand for that particular product were to go down, then the employer could hire casual labour, as and when they want, or make the full time workers go on part time so that they would not lose their jobs. In conclusion, the free market economy on the whole is a good economy, which runs very well. It is and has been the most successful type of economy. Even though it is a very successful economy, there are some faults and disadvantages to the free market economy. The three major disadvantages to this type of economy, that I have discussed, are unemployment, monopolisation and the dynamic wage rate. These are disadvantages to the free market economy, but they can be overcome in some of the ways I have suggested. One could say they are flaws in the free market economy, but they can be overcome to make a better economy. ...read more.

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