Free Market Economy

Characteristics/Features

• All the resources (factors of production) are owned by private individuals.
• Profit is the main motive of all business.
• There is little or no government interference in business activities.
• Producers are free to produce how much they want, for whomever they want.
• Consumers are free to choose between different brands of the same product.
• Prices are determined by the market mechanism of supply and demand.
• Businesses are free to enter the market.
• There are no countries with a free market economy but the economies of the United States and Japan are close.

Advantages

• A free market economy responds quickly to the needs are wants of customers.
• A wide variety of products gives an opportunity for people to choose from.
• There is an efficient use of resources.

Disadvantages

• Some goods and services may not be produced for example 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
• Duplication of resources.
• Unequal distribution of wealth.

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