Free Market System Essay Example | Topics and Well Written Essays - 2250 words

Free Market arranging - Essay ExampleThis is more of a hypothetical situation as no economy in the world is in a total Laissez- becominge state. As opposed to be after economy, the rid-market economy allows households and mystic firms and businesses to own land and other resources and use them to invest in all part or bena of the economy which seems lucrative and profitable to them (Rao, 1998). In order to understand the benefits of free-market economy, one needs to understand how the planned economy works. In a planned economy, also known as command economy, all the resources are state owned. Its allocation is decided by the judicature in order to maximize the societys welfare regardless of the profit motive. This means that even if the venture does not put on profit for the judicature and if the venture is good for the societys welfare, the state would continue to allocate its resources to the latter. For example, if a government sets up a state-funded hospital in a remot e are with state-of-the-art facilities, it cannot expect a fair bring round of revenue from its investment. However, this venture would increase the life expectancy of the people in the area and mend their standard of living. The government, run in a command economy will not withdraw the investment. Likewise, operating a state-owned Postal Service in a remote area would incur losses as there would hardly be enough posts to break-even. Despite a ventures disability to earn profit, a planned economy would continue to invest if a venture is maximizing the societys welfare. Examples include building roads, infrastructure, merit and public goods etc. As there is no profit motive, the government will not invest as per market forces and the entreat of the consumers. For example, if there is a high demand of luxury goods in the metropolitan city of an economy, the government would rather invest in those areas which would satisfy introductory necessities of people in different parts of the country. Likewise, the government would not be interested to produce variants of any category. For example, there would be a limited range of cars produced in the economy. Some critiques argue that this economic arrangement maximizes the societys welfare and there is more even distribution of income in the economy as opposed to free market system. This is true to some extent however, like the case of Laissez-faire, there is no economy in the world which is entirely command economy. There is some level of international handicraft or some or some level of production in an economy which is driven by profit motive. However just for the sake of argument, planned economies fail to meet the consumers demand in an economy. withal this, as there is no profit motive, the workers get de-motivated and as they are not allowed to own assets or factors of production, the economys GDP would be restricted to what a free-economy could otherwise have achieved. Besides this, the resources pers ist to be misallocated as they will not be yielding a fair return which it otherwise would have if the respective end product had a demand. The government would just be injecting more resources with no return as reimbursement at the expense of other people who would deserve a fair return for their taxes in the form of a diverse range of commodities to choose from (Rao, 1998). In a free-market economy, the resources are not just state-owned. Individuals and firms have the liberty to invest in whatever which is in demand. The market-forces would move in to arouse the prices automatically and bridge the gap between demand and supply. Market forces will only come into accept when the resources have some mobility and the consumers are free to choose from a range of products. Besides this, in the free market economy, there is a