This type of economy has been the most successful market, compared with the planned economy, which collapsed in places like Russia. The free market is sometimes known as a capitalist economy and the planned economy is known as a communist economy.
Despite the free market economy being very successful, there are some major problems. For example, the issue of unemployment is a major problem. If a person was to lose their job, they would have to find another job, probably in a different industry, so they would have to get training, which would take a lot of time. Other employers might not even employ them, it is a vicious circle. The unemployed however do get state benefits, which give them a bit of money. Due to this vicious circle, there is a lot of unemployment, since people are not skilled to work in different industries. The free market system can be very hard on those people who are having a hard time, such as the unemployed people.
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.
To prevent this problem, competition laws can be introduced that state that monopolisation of 2 companies cannot occur, for example the mobile phone industry, competition laws have been passed saying that major companies cannot buy each other, such as O2 cannot buy orange etc.
Another problem with the free market economy is to do with wages. If the demand for a particular product goes down, then the producers of that particular good does not need as much labour, so there could be cutbacks in employees, so unemployment would increase. Also, for those people who did not get sacked, since the demand for that particular good has gone down, and they are not selling as much of their product, the wages would go down, so some of the people who did not get sacked, may leave as to find a job that has a higher wage, probably within the same sector of industry. Wages are another thing that change all the time within this free market economy.
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.