Advantages and Disadvantages of Free Market System

There are many advantages to a free market economy. They range from the moral issues to the practical issues. We will deal mainly with the practical ones.

  • Unprecedented innovation. Free markets are wrought with inventions and the capital to research them. Countries classified as having a free market have been responsible for the vast majority of inventions since the 19th century.
  • Very high income mobility. This means that under a free market system it is easier to move around income brackets.

This is not to say it is easy, it is just easier to become rich or poor when you’re left to your own devices as opposed to a controlled economy where resources are allocated by the government.

  • Massive increases in efficiency and productivity. This happens from the survival of the fittest aspect of free markets. Firms that have higher costs than others (by producing inefficiently) will go out of business as those that are more efficient prosper. Thus, firms are always looking for cheaper ways to do things (this drives costs and prices down, etc etc) A much higher GDP.

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    Free market-leaning countries have higher GDPs than command market-leaning economies. This is because they produce more.

  • Very productive tax system. Due to the huge wealth level, it is easy to collect taxes. For example, it is easier to get taxes from a very rich person than from a person who barely has enough money to eat. This large amount of tax revenue results in:
  • More money spent on social programs.

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    Free market nations generally spend more or have more efficient social programs.

For example, the police and firefighting technologies in America and Europe far surpass those of China or many Arab states. Answer:

  1.  In the provision of merit goods like education,health,housing… so the poor will be deprived of the merit goods. In this way the rich becomes richer and the poor becomes poorer.
  2. Non provision of public goods (bus stop, garden, street lighting, army, police, fire services) important requirements for public goods not provided since it is not profitable to produce as consumers are not directly willing to pay for them. over consumption of demerit goods (drugs, cigarettes, alcohol) if consumers have a preference for these goods, then they will be provided given that they are profitable to produce.
  3. social cost ignored private firm ignore negative externalities (air,water and noise pollution,road conditions).
  4. wastage of resources 6social injustice 7 economic instability
  •  In every category 1-7 above, countries which are furthest from a free market economy perform worse in those categories than those closer to free markets.

A stark and apt comparison is North and South Korea which up until the 1950s had the exact same history, yet now are completely divergent where the South Koreans excel in every one of the above 7 categories compared to the North. It’s very clear now empirically that individuals that live in countries that reject the free market are much worse off in every respect than those who live in freer societies with stronger capital markets.

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Advantages and Disadvantages of Free Market System. (2020, Jun 01). Retrieved from

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