Essay on A Mainly Free Economy

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Economics Unit One Essay
Ruby Bamford 1st Period
March, 4th Spring 2013

A mixed economy that contains the benefits of a market economy, but also the stability of a command economy will lead to a better society. A free Market has many benefits that allow economic freedom and growth, but because of the unpredictability in a market economy, there is a lack of government intervention for the welfare of the people in times of recession.

A free market has many important benefits; economic freedom, the Invisible Hand Theory, promotes incentive and competition, and is based on the people’s wants and needs. In a free market, firms and businesses compete to satisfy the consumer’s want and needs. Naturally, rational consumers will want the best product quality at the lowest cost. This enables prices to be determined naturally by the consumers, which is something a command economy does not allow. The system of naturally set prices by business competition was named the ‘Invisible Hand theory’ by economist Adam Smith. In addition to more accurately set prices, a market economy unlike a command economy is driven by self-interest. A command economy Everyone does everything for more money, this environment allows incentive and growth in the market. Countries with an economy leaning farther towards that of a free market, for example Hong Kong, have grown 10% annually.

While a Free market has many upsides, it lacks some of the benefits of a command economy, for example it’s stability. Because a market economy is run by self-interest, most money tends to go towards people’s wants verses basic needs such as education and health care. A command economy has more government interference, and while we want all the independence and freedom from the government as possible, even Adam Smith suggests that some government intervention is essential. Because of a market economy’s unpredictability, a certain degree of