Last Updated on March 11, 2021 by Filip Poutintsev
A free market is a system where the prices of goods and services are determined by the open market and consumers. The supply and demands also help to determine the price of products and services.
The free market is operated on its own which means they are not in the control of government agencies to formulate the rules of trade.
Free Market Economy – Pros and Cons
Capitalism is a form of free-market economy which is maintained through competition. A market is strong when demand is up and when demand rises supply can adequately satisfy the consumers. In this case, people have money to buy products that boom the economy.
As a result, the supply increases which in turn increases the production of goods and services and more wealth is generated. This causes to recruit more employees in the production and sales company. The taxes paid on this type of wealth earned through free-market rises which increase the economy of the country.
Thus a country benefits a lot from the free market. On the other hand, demands decrease when the market hits the bumps in the road through a stock market crash or a housing slump. In such cases employment opportunity decreases, fewer numbers of products and services are produced and sold and less wealth is created.
This leads to a decrease in the economy of the country as a whole. Though it seems the free market has many positive sides for uplifting the economy it has a downside too. Here are the pros and cons of the free-market listed below.
PROS OF FREE MARKET
Advantages of Free Market Economy
Free market propels innovation
A free market is a place where anyone can sell their products and services without much intervention from the government bodies or agencies.
This leads to competition among market owners or businesses for producing excellent products and services for the consumers. As competition increases the quality of products and services also increases.
The free market is a consumer-based economy were satisfying the buyers need is of great concern. So the free market always tries to create things that are fit for the consumer. Trending goods are produced to sustain in the market. Products are designed in new models to increase efficiency which leads to competition among producers.
A free market is controlled by the customers
Customers play a vital role in the success and failure of the products and services. It depends on the liking of the consumer whether to buy products or not.
If they like the product they will buy it but if products did not satisfy customer obviously they will reject it. Demands for the products and services depend upon customers.
Demands are made by customers for a product that is efficient and long-lasting. This leads to creating things suitable for the buyer which in turn increases the sales and economy as a whole. Sales results determine the preferable goods to buy.
Free markets are encouraged to make profit
Producers, consumers, and employees are all benefited as the market grows. After making a profit from the company the market share rises which benefit individual or investors. The collected capital is now invested in other or the same business to seed the future of the company.
CONS OF FREE MARKET
Disadvantages of Free Market Economy
A free market is a profit-motive economy
Although making money or profit is good for business there are drawbacks too. There may be a chance of unseeing of hard work of workers to make more profit.
These issues bring dissatisfaction among workers which eventually degrades the quality of products and services produced. After working for hours, the number of products and services may rise but there is the possibility of health issues in workers.
You should be aware of the environmental standards while doing business otherwise it will have a catastrophic effect on nature. For example, the Deepwater Horizon oil spill in 2010 was due to the use of low standard cement.
Free market causes catastrophic results when it is unsuccessful
When a free market is unsuccessful in its operation everyone has to confront severe consequences. The great depression of the 1930 and real state crash in 2010 greatly impact the people losing jobs and even houses.
This causes people to be in debt for many years. Some of the products and services produced in the free-market are of low standard and quality which needs to be properly managed and regulated by the government agencies to ensure the long run of the free market.
Bigger is often better
Large companies with a large amount of capital, investors, and labor usually have an advantage over small scale companies or producers.
The reason for this is small producers don’t have the resources to make competition with large producers. This causes small producers to face many challenges regarding sales of products to give continuity and eventually losing their business.
This gives rise to a monopoly market which in turn decreases the economy of the country. A monopoly market is such where everyone depends on the same company for receiving services and customers are discouraged to make demands of their choice.