Cambridge AS A Level Business Studies/ ZIMSEC Advanced Level Business Studies/ Business Enterprise Skills Notes: Free Market Economy: Advantages and disadvantages 

  • Having examined the features of a Free Market Economy
  • We will now examine the advantages and disadvantages of this economic system
  • While it might not be said explicitly these benefits contrast with those of a command economy
  • For the most part, the advantages of a free market economy are the disadvantages of the command economy
  • The converse is also true as the disadvantages of the free market system are often the advantage of the command economy

Advantages

  • A free market economy responds quickly to the needs are wants of customers
  • There is no bureaucracy as opposed to command economies where the government has to consult widely before making a policy change
  • A wide variety of products gives an opportunity for people to choose from
  • There is an efficient/optimum allocation and use of resources
  • Profit is a pretty strong motive that will inspire entrepreneurs to establish more businesses
  • Businesses are free to innovate
  • Business operations are informed by consumer desires i.e. there is consumer sovereignty

Disadvantages

  • Some goods and services may not be produced for example merit and public goods
  • Unemployment may result since only those with skills that are in demand are actively employed
  • Social costs such as pollution can be ignored
  • There is duplication of resources, for example, mobile network operations having base stations in the same area even if one would suffice
  • Ultimately result in an unequal distribution of wealth
  • Can lead to monopolies which might dominate the market, crush other businesses (their competitors usually) and eventually exploit consumers/customers
  • There is not much incentive to act ethically at times

To access more topics go to the Advanced Level Business Studies page

To access more topics go to the ZIMSEC Business Enterprise and Skills page

To access more topics go to the Cambridge AS A Level Business Studies page

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