• 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. Economics questions - economies of scale.

    So they become less co-operate and the quality of the products they produce falls. As a result strikes are more likely to occur in very large firms. 3. Define and explain all External Economies of Scale: * External Economies of Scale: Are reductions in long-run average costs than become available

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

    potential market here because if cost of living is high per person then standard of living will be high also because they can afford to spend money on luxury goods. But competition is high also because Netherlands was ranked 5th in being the world's most competitive countries in 1999 and still is a growing market.

  1. Transition Economies

    But low prices often result in excess demand since everyone can afford to buy now but there are shortages thus a queuing system is formed. In command planned economies there is need for competition. This need of competition leads to the production of poor quality of goods.

  2. Global Imbalances

    but we can't ignore that there are still continual obstacle to the free flow of goods and services across borders. Meanwhile, few capital markets and banking sectors in particularly domestic banking started their operations when there is a rigid and ineffective policies, procedures, rules and regulations and at the same

  1. Chinese car market overview. Citroen case study

    Moreover, custom taxes will be reduced (from 80% in 2001 to 25% in 2006), import quantity restrictions will be totally banned in 2006, and finally, car distribution and loans will be more efficient and frequently used in 2 to 4 years time.

  2. Introduction to the TV market

    Figure B Compared with figure A, there were two more competitors in the market in 2000, satellite/ cable, which gained a 16.6% increase in market share and CH 5 with a 5.7 % gain in market share. Up against the new competition from satellite/ cable, the losers were BBC 1

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