Discuss The Pros And Cons Of Market Economy

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Recommended: Advantages and disadvantages of Free Market Economy

2 My understanding of a market economy is where decisions are based on supply and demand, in regards to any investment, any production, and distribution of funds; it is where the prices of goods and services are determined. The activity in a market economy is unplanned; it is not organized by any central authority and is determined by the supply and demand of goods and services. Alternatively, a command economy is organized by government officials who also own and direct the factors of production. "Capitalism" is conventionally defined along economic terms such as the following: An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market. (Dictionary 2016)
Pros and cons of Capitalism …show more content…

A free market will ignore extenalities. A profit maximising capitalist firm is likely to ignore negative externalities, such as pollution from production. This can harm living standards. Similarly, a free market economy will under-provide goods with positive externalities, such as health, public transport and education. This leads to an inefficient allocation of resources. Even supporters of capitalism will admit that government provision of certain public goods and public services is essential to maximise the potential of a capitalist society.
Inherited Wealth and Wealth inequality. A capitalist society is based on legal right to private property and the ability to pass on to future generations. Capitalists argue that a capitalist society is fair because you gain the rewards of your hard work. But, often people are rich, simply because they inherit wealth or are born into a privileged class. Therefore, capitalist society not only fails to create equality of outcome, but also fails to provide equality of opportunity.
Inequality creates social division. Societies which are highly unequal create resentment and social

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