Most economic decisions are made by buyers and sellers, not the government. A competitive market economy promotes the efficient use of its resources. It is a self-regulating and self-adjusting economy. No significant economic role for government is necessary. However, a number of limitations and undesirable outcomes associated with the market system result in an active, but limited economic role for government.
One of these roles of the government is the economic systems. In the free market system, the free market is a self-sufficient system where the normal people are the main source of decisions for the products and the prices. The government role in this market is the most large assure for the people playing in the market to be fair and to supply national infrastructure needed. In addition, some regulations are required to avoid unprincipled people as not to gain inequitable advantages. Moreover, the government has legal role in organizing large projects for the benefit of the people like national defense and aviation safety.
A market is an exchange establishment that serves society by organizing economic activity. Markets uses price to communicate the wants and limits of a wordy and varied society so as to bring about coordinated economic decisions in the most efficient manner. Markets will works well when prices reflect all the values. Market failure occurs when some of the cost or benefits are not fully redirect in the market price. Market failure is the failure of the market to deliver the socially ideal output and the entire market system would then deliver a sub-optimal mix of goods and services (Ellen Sewell, 2010) Market failure and its sources is the most important part because these are the factors under which the government intervention into the market is possibly acceptable on the economic
Capitalism tends to do businesses to gain the maximum profits. Goods and services are produced to make a profit, and the cost of products is based on decisions of owners and the markets, which means demand and supply play an extremely important role in this system, so the price of products is varied, and this system usually can attract more customers by using marketing and advertisement. At the same time, the wage rate is also diverse and high. Moreover, Capitalism significantly helps economic growth and expansion of economy by increasing gross national product* (GNP) as a domestic economy flows and native people earn a high income. In other words, the more an amount of money people receive from working is the higher gross national product.
This allows producers to study the demand and decide what will sell and generate the most income instead of waiting for the government to tell them what to make. Also producers in a free market economy price goods and services reasonably allowing consumers to afford more. This causes competition which helps to ensure that the best goods and services are offered at lower
The free market system tends to create an unfair distribution of income as companies are competing against each other and you can have unsuccessful season due to your competitor’s new advertisement etc, such as if your company bring out a new phone the same time as a wealthier company brings out their new phone and can advertise more, you may lose a lot of the demand and therefore money due to more demand for the other phone. Therefore leaving you with very little profit and income. This eventually leads to the wealthy consuming a disproportionately large share of what is produced. On the other hand the opposite of this, a planned economy, seems a lot fairer. As in a planned economy, the planner tries to be fair in distributing the output of the economy.
Though the market is not entirely free, it is occasionally limited by government intervention. This, however, is normally to promote competition or encourage or dampen demand. In theory, a market economy’s base is on the cornerstones of the principles of supply and demand. In this way, the market is meant to respond to changes in demand for particular goods and services.
This type of market can lead to market failure in the economy this occur when there is an inefficient allocation of the resources in the economy. Example of this can be climate change, which has caused a lot of environmental damage due to production of some
Using Kimberly Amadeo’s words, “ a market economy functions through competition”. Competition has its own advantages which include but not limited to production of goods and services in a more efficient way to maximize profits, rewarding of innovation, improved quality of goods and services being offered and also accumulation of capital. The demerits include disadvantaging the less privileged in society who are naturally unable to compete. Examples of the underprivileged include the elderly, children, and mentally or physically challenged people and the caretakers of such people are also disadvantaged because their energies and skills are taken up with caretaking, not competing. In a nutshell, free market favors those who are good at
ormation is Imperfect? According to Hosein and Gookool, market failure arises when the economy or the free-market is unable to produce an efficient level of output and as such there is either underproduction or overproduction taking place. Market failure is a prime feature of the free-market system. Market failure is also caused by a number of factors; one of such is imperfect information. Imperfect information causes market failure due to the fact that it distinctly counteracts the hypothesis of the free market system.