Free Market Economy

The effects of China moving to a free market economy

Terms in this set (...)

Free Market
An economic system in which individuals decide for themselves what to produce and sell, without any intervention of the government
The invisible hand
term economists use to describe the self regulating nature of the marketplace, where the demand of the market determines how much the producers produce
Advantages of a free market
Producers have full control of what to produce, and they will be more motivated to work and produce the goods toearn money. It also encourages economy growth by allowing total control to the producers, who will produce goods according to what the markets demand.
Disadvantages of a free market
Demise of competition.
Uneven distribution of income
Low provision of public goods
Misallocation of resources
Demise of competition
In a free market,some companies can easily become monopolies in their market.For example, Microsoft is a monopoly in the computer software market. Many companies are unable to compete against the monopolies, which discourages competition and the monopolies stay in charge of the market.
Uneven distribution of income
In a free market, people who are well learned can be very successful in their business and be very wealthy. However, some people who are less skilled and trained will not be able earn much money and end up being very poor.
Low provision of public goods
Many companies choose not to produce public goods, as it is impossible to make people pay for the goods. Hence the companies will not be able to earn any money, and being selfish people, the companies will not produce public goods.
Misallocation of resources
In a free economy, many companies choose to use the limited resources of the world to make harmful products, such as cigarettes. They do not care about the social effects they are causing, and simply produce these products in order to earn money