Free Market Economy - allocates resources based on supply, demand and the price mechanism - Advantages and disadvantages table in A Level and IB Economics

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Created by: meganjxmes
Created on: 12-05-18 12:55

Free Market Economy - allocates resources based on supply, demand and the price mechanism

Advantages

Efficiency - any product can be bought or sold so only those of the best value will be demanded, Incentive for firms to improve
Entrepreneurship - rewards for good ideas can make you lots of money, this encourages risk taking and innovation
Choice - incentives for innovation can lead to increased consumer choice - consumers are not restricted to what the government wants to sell

Disadvantages

Inequalities - can lead to huge difference in income
Non-profitable goods may not be made - e.g. life saving drugs for rare conditions may not sell enough to make profit, so they will not be made
Monopolies - succesful businesses may become the only seller, this market dominance can become abused

Evaluation

Overall - they have improved efficiency and incentives to innovate along with increased choice, but they can lead to inequalities and certain goods not being produced

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