To What Extent Do You Agree That A Free Market Economy Is The Only Approach To Bringing About Economic Growth

2716 words - 11 pages

To what extent do you agree with the view that only a free market approach to running the economy can bring about sustainable high levels of economic growth and development?

The basic economic problem is that we, as consumers, have unlimited wants and scarce resources. (Anderton, 2008, p.1) Due to this, the questions of what shall be produced, how it will be produced, and who gets the product, arise. (Sandford, 1977, p.42) Therefore, economic systems exist to allocate resources and solve these problems. There are three main economic systems, which include the free market economy, command economy and mixed economy. (Grant and Vidler, 2000, p.19) This essay will explore whether or not a ...view middle of the document...

(Sandford, 1977, p.45) As more firms read the signals, enter the industry, and produce the good; prices will be driven down due to competition and a higher supply. This implies consumer sovereignty, as the economy produces what the consumers want through the consumer’s spending choices. (Sandford, 1977, p.46)

Furthermore, as well as the consumer having sovereignty in that they dictate to producers on what should be produced, it is said that consumers would also benefit from high quality goods. (Simpson, 2005, p.111) For example, if a government were to produce goods for consumers, there would be little incentive for them to determine the level of safety and quality consumers want in their goods. This is due to the fact that a government is not motivated by profit. (Simpson, 2005, p.111) In a free market there is a high level of competition. To compete with their rivals, firms need to offer goods that have an edge over similar goods, since consumers are looking to maximise their utility. Any firm which does not provide this, or provides a good with quality below that offered by their rivals would put themselves at a disadvantage. The loss of profit would therefore force them to compete on price and improve quality if they do not wish to go out of business. (Simpson, 2005, p.111) This is another example of the ‘invisible hand’ in motion.

According to Anderton, (2008, p.207) firms need to either increase the quantity or quality of their inputs in the production process to increase economic growth. Ceteris paribus, a free market economy would stimulate economic growth and development through the expansion of output due to signals created by consumers. With firms in the free market economy looking for a way to expand and improve output due to high demand, they would need to invest in more capital and demand more labour. (Sandford, 1977, p.45) This in turn would create a multiplier effect, whereby firms are purchasing more factors of production (such as labour) from households, who are therefore receiving new/higher incomes through wages, rent and interest. This increases consumer spending on goods, increasing producer profits, and so on. (Mankiw, 2011, p.768) This would be an example of economic growth.

However, without all other things being equal, a free market economy does have its disadvantages which can lead to market failure. For example, monopolies could be formed in a free market economy as there is no government to protect consumers. Monopolies are firms that offer goods with no close substitute, which therefore makes them the only supplier in the industry. (Anderton, 2008, p.306) Monopolies are a disadvantage to both firms and consumers in a market, as they are able to charge high prices due to consumers having no other option but to purchase their goods. This means they are able to make large profits and create barriers to entry and exit for any firm who wishes to compete with them. Furthermore, since they do not need to compete,...

Other Essays Like To What Extent Do You Agree That a Free Market Economy Is the Only Approach to Bringing About Economic Growth

"The Long March Was a Retreat That Changed the Destiny of China" to What Extent Do You Agree with This Statement?

1169 words - 5 pages “The Long March was a retreat that changed the destiny of China” To what extent do you agree with this statement? The Long March was an epic journey across China conducted by the Red army in 1934. After the breakdown of the first United Front, Chiang Kai Shek launched an offensive which forced a retreat from Mao and the Red army. This retreat is believed to have lasted for over a year and covered 6000 miles. By the end of the march, of the

Technology Is the Best Way to Reduce the Impact of an Earthquake - to What Extent Do You Agree with This View

1136 words - 5 pages ‘Technology is the best way to reduce the impact of an earthquake’ to what extent do you agree with this view? (40 marks) An earthquake is a sudden violent shaking of the ground, typically causing great destruction, as a result of movements within the earth’s crust or volcanic action. Impacts of an earthquake can include short-term impacts such as fatalities, or long-term impacts such as income lost through lack of tourism. Technology can be

“Referendums Are Beneficial to Democracy” to What Extent Do You Agree with This View?

904 words - 4 pages   “Referendums are beneficial to democracy” to what extent do you agree with this view? Referendum is a public vote on legislature. It is a ‘yes’ or ‘no’ on specific issues affecting a state. It is the most direct form of democracy. Referendums become a popular mechanism for making decisions under the ‘Blair’ administration. In a referendum, the government asks members of the public to help decide on an important issue. Everyone of voting

To What Extent Would You Agree That John Proctor Is Presented as an Honest, Strong but Ultimately Flawed Character?

1348 words - 6 pages , wanting her to react to his motion but not too much. It is even more unnerving as you know he is being “pleasant” only to get what he wants, which is to save his wife. The word “quietly” suggest a more flirtatious way of holding someone’s hand., like two school children but it could also been seen as a good part of Proctors character. “Quietly” suggest that he knows that the only way to save his wife is by getting Mary to confess that the girls

Do You Agree That Education Is No Longer the Key to Success?

989 words - 4 pages system in China and Singapore still focus very much on the transfer of knowledge through textbooks and notes. This form of education allows less room for the growth of creativity and innovation. Thus, it is unlikely for a student to climb up high on the corporate ladder in his later stages of life as he or she may only be able to regurgitate what is in the notes but not able to apply the knowledge effectively. As such, the current form of education

‘the Tone Says Life Is Fun. the Undertone Suggests Life Is a Catastrophe’. to What Extent Do You Think Eric Bentley’s Comment About the Dramatic Genre of Comedy Is Relevant to Oscar Wilde’s the...

1582 words - 7 pages ‘The tone says life is fun. The undertone suggests life is a catastrophe’. To what extent do you think Eric Bentley’s comment about the dramatic genre of comedy is relevant to Oscar Wilde’s The Importance of Being Earnest? The philosopher and literary critic Sigmund Freud agreed with Bentley’s statement on the dramatic genre of comedy, agreeing that ‘every joke contains an element of seriousness; a joke is never just a joke’. Wilde uses many

Discuss the extent to which economic growth may benefit an economy

620 words - 3 pages Economic growth can be defined as the rise in the output of an economy or a rise in national income over a given period of time. Economic growth can be beneficial to the economy but needs to be managed as so to not incur opportunity costs. This essay will discuss whether the benefits out weigh the costs of economic growth, or whether the costs exceed the benefits. An advantage of economic growth is that it is likely to cause a rise in living

“the Decline of the Khmer Empire Was Largely Due to Its Faulted Water System.” to What Extent Do You Agree with the Statement Above?

667 words - 3 pages “The decline of the Khmer Empire was largely due to its faulted water system.” To what extent do you agree with the statement above? The decline of the Khmer Empire was due largely to its faulted water system. However, many other factors were the causes of the decline of this Civilization. For example, the influx of another culture, a land depleted of natural resources, Natural disasters and attacks from many other Civilizations all lead

“to What Extent Was Rapid Economic Growth the Cause of Social Tensions in Wilhelmine Germany?”

1952 words - 8 pages “To what extent was rapid economic growth the cause of social tensions in Wilhelmine Germany?” In Wilhelmine Germany, an industrial revolution was taking place. By 1910, Germany had almost caught up with Britain on the production of industries such as coal and steel, with the rate of growth overwhelmingly surpassing that of the Britons. Germany was also home to new industries, like that of chemicals, which quickly saw 90% of the world’s hair

Although Slavery Is Rarely Mentioned in “Le Cœur À Rire Et À Pleurer”, Its Legacy Haunts the Text. to What Extent Would You Agree with This Statement?

521 words - 3 pages Le cœur à rire et à pleurer by Maryse Condé is unquestionably a text in which the author subtly alludes to slavery several times; in fact, I believe that the notion that it ‘haunts’ the text is a very appropriate description. Plainly, Condé doesn’t seem to wish to mention slavery by name very often in the text. However, it is evident that in her memoir she is very aware of the undeniably negative effect that slavery and its respective legacy had

To What Extent Would Sociologists Agree That Lack of Opportunity Causes People to Commit Crime?

787 words - 4 pages To what extent would Sociologists agree that lack of opportunity causes people to commit crime? In this essay I will be discussing this question, ‘To what extent would Sociologists agree that lack of opportunity causes people to commit crime?’. Lack of opportunity can be a vital reason why many individuals may commit crime. What is meant by the term ‘ lack of opportunity’ is that some individuals may not have things such as; an education

Related Papers

To What Extent Do You Agree That A Revolution Happened In Germany At The End Of World War I

671 words - 3 pages To what extent do you agree that a revolution happened in Germany at the end of World War I In Germany between 1918 and 1919 there were major political changes. They went from being an autocracy to a democracy. A revolution is defined as a forcible overthrow of a government or social order for a new system. It was called a revolution for numerous reasons. On October 29th 1919, a mutiny started to spread near Kiel because sailors refused

“The Celts Were A Barbaric And Primitive People.” To What Extent Do You Agree

663 words - 3 pages essay on celts - gEORGIA WEBB"The celts were a barbaric and primitive people." to what extent do you agreeIn Iron Age and Medieval Europe, there were a group of tribal societies called the Celts that spread all across Europe. The Celts were believed to be semi-nomadic, moving all around Europe. Recent tells us that they were essentially located in central Europe and then migrated. More recent news, archaeological studies are now telling us that

What Does It Mean To Say That Romantic Love Is A Moral Issue Do You Agree

1418 words - 6 pages undertake it, morality would intervene in decision making. 'Romantic love is not under our command, which means it is not something we are able to do at will' (Halwani2010, p.90). Romantic love is accidental; people just can not control the time, the place and the person that they will fall in love with. As a result, we can conclude that romantic love is not obligatory. Therefore, romantic love is neither obligatory nor prohibited; the only

The Underlying Theme Of Othello Is Reputation And It Is This That Culminates In The Play’s Tragedy. To What Extent Do You Agree With This Claim?

1172 words - 5 pages English Literature The Main theme of Othello is not the theme of jealousy but the theme of reputation and this is one of the main constitutes, responsible for the tragedy of the play: to what extent do you agree with this in regards to Act Two Scene Three and Act Three Scene Three? In William Shakespeare's Othello it could be thought that the main theme is Jealousy however in Act two scene three reputation become a prominent theme