ECONOMICS

Economics

Economics

Introduction

This paper intends to answer the question of “to what extent do you agree with free market economies being more effective than a mixed economy?” There is always a debate regarding the efficiency of market economies and mixed economy. A market economy refers to an economy in which the decisions are made in a free price system whereas a mixed economy refers to a mixture of command economy and free market economies. The purpose of this paper is to explore about the significance of free market economies and mixed economies.

Free Market Economies

A free market economy is basically an economy which undertakes the decisions related to investments being made, production and distribution of goods on the basis of supply and demand. The prices of goods and services are identified in the context of a free price system. The underlying feature of the market economy is that the decisions related to investments and the allocation of goods and services are entirely made through markets. The free market economies tend to work in contrast with a planned economy in which the investment and production decisions are thoroughly planned (Kates, 2011 Pp. 25-32).

Mixed Economies

A Mixed economy is basically a combination of free market economies and command or planned economies. In mixed economies; a certain portion of the economy is run in accordance with the principles of free market whereas the other portion of the economy is run by the government. The initiation of mixed economies can be traced when the private businesses are allowed to run important field of an economy. However, the businesses face continuous intervention from the government in the form of regulations. Today, majority of world economies are mixed having varied degrees of state intervention (Sirico, 2012 Pp. 130-137).

Comparison in Free Market Economy and Mixed Economy

Before answering the question about free market economies being more effective than a mixed economy; it is important to analyze the underlying strengths and weaknesses of both the free market economies and the mixed economies.

Advantages of Free Market Economy

Free Market Economy is extremely efficient. The reason behind the efficiency of free market economy is that the free market economies induce the underlying competition in the market. The industries prevailing under the free market economy are competitive enough and capable of allocating the resources effectively.

The free market economy entails the businesses to choose what they intend to produce. The consumer remains extremely sovereign; thus free market economy encourages the businesses to produce in accordance with the choice of customers. Firms are not restricted for their operations. As a result; free market economy offers a variety of goods and services as compared to mixed economy.

Also; the free market economy appreciates innovation. In order to remain competitive in the industry; firms always try to innovate in their production and come up with new products frequently. The incentives for free market system to become innovative and produce products with better quality are immense.

The free market economies also have higher economic growth ...