• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month


Extracts from this document...


WHAT IS THE IMPORTANCE OF PROFIT MOTIVE IN MARKET ECONOMIES? WHAT ARE ITS NEGATIVE EFFECTS? Profit motive is a characteristic of free market economies, where the sole intention of producers is to make profit. This results in both positive and negative results. A free market economy is one where - Property and resources are privately owned - There is freedom to produce and purchase goods and services - There is no central planning of the economy - Price mechanism and profits determine price of economic goods - Profit is the driving force, or motive of all firms Thus it is evident that there are many privately owned firms that provide the economic goods in market economies. ...read more.


Goods will be sold at that price at which: 1. more goods will be purchased and consumed 2. more profits will be made Thus goods will be sold at the most profitable price Profit motive also has its own advantages: 1. it creates incentives for newer products to be made 2. it provides incentives for employees to work efficiently 3. it ensures efficient utilization of resources 4. competition is created, thus only good quality goods survive 5. there is development of technology to allow quicker and cheaper production of goods There are also, however, some disadvantages of overemphasis on profit motive. 1. Misallocation of resources: due to profit motive, firms concentrate on producing that what is most profitable, and not what is most needed. ...read more.


Ruthless exploitation of resources: in order to make more profitable goods, resources are used quickly, without much planning for the future, resulting in degradation of ecology, pollution, and future scarcity of resources 5. Wastage: since newer machines and technologies are brought out, old ones are discarded. Also, when new goods are introduced in the market, the old ones are thrown away. Therefore there is wastage of resources 6. Economic imbalances: although not a direct influence of profit motive, cyclic booms and recessions are caused due to over dependence on price mechanism, causing periodic unemployment. Thus it is clear that profit motive has its pros and cons. In order to avoid the cons, economies impose government restrictions so that profit is made, but welfare of the people is also maintained. This is also one of the reasons why mixed economies were established. Now there is no pure market economy. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our GCSE Economy & Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related GCSE Economy & Economics essays

  1. Chinese car market overview. Citroen case study

    - Exclusive points of sale - Modernisation of the trading methods of the traditional network of resellers taking account of special economic and relational conditions specific to China. - The branches : it set up a customer care service available 24h/24.

  2. This report will establish the opportunities and threats presented to Sony by the EU ...

    UK market from other EU businesses because the other 14 countries may have better priced and quality products than those of the UK. This happens a lot because many people would rather go to other European countries to purchase their car than buy it in the UK market.

  1. Global Imbalances

    For a significant period of time no discussion of the crucial challenges in front of global financial markets and policy makers at international level was finalize with no indication to the "rising global imbalances", exemplify popularly by the US current account deficit.

  2. Economics questions - economies of scale.

    The advantages of Internal Economies of Scale are lost by the disadvantages of Internal Diseconomies of Scale. - Managerial Diseconomies - Many managers can be an advantage but having to many can make the organization of production very complicated and more costly.

  1. Introduction to the TV market

    Excluding cable and satellite, the market has a 3 firm concentration ratio of 77.8%, compared with 100% in 1990, which shows that the market for TV has become a more competitive environment over the last 10 years. Terrestrial TV BBC The BBC is the main public service broadcaster, which is

  2. Transition Economies

    $9,613 $301 $19,743 $5,256 $4,600 $1,240 (GNP) People per telephone 2.2 149.8 1.6 4.3 2.7 709.8 People per television set 4.2 100.7 2.4 5.8 4.7 85.2 People per automobile 29.8 1,093.3 2.2 4.8 12.4 80.7 Sources: The Economist Book of Vital World Statistics (1990), CIA World Factbook, 1991.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work