The free market Flashcards
What is the free market ?
Any place where buyers meet sellers to exchange goods and services free from GOVT intervention
What are some advantages of the free market ?
Allocative efficiency as the price mechanism never fails to supply at the right level
Encourages consumption and innovation to reduce price
Dynamic efficiency leads to more investment
Freedom , liberty and choice
Job creation and economic growth as quantity is at the max level
What are some cons of the free market ?
Markets can fail if monopolies take control
Inequity given inequality as the price is not always fair for the poor
Excessive profiteering may lead to monopolies
Price elasticity may cause price volatility in markets
What happens at equilibrium / allocative efficiency ?
Resources perfectly follows consumer demand
Society surplus maximised
Net social benefit is maximised
