Advantages and Disadvantages of a Free Market Economy

In a free market economy, supply and demand control the costs of goods and services. Buyers and sellers have free transactions based on an agreed price without government intervention, which may occur in the form of taxes, subsidies, and regulations. Free market economies are based on competition and are usually associated with capitalism. Because the economy is tied so closely with politics, many disagree as to whether or not a free market economy is beneficial or harmful to society.

Free markets allow consumers to make their own decisions about which products to buy, encouraging competition. This helps to promote better quality of products at reduced prices, encouraging people to purchase more goods and services. When companies are more successful, both the necessity of workers and wages are increased and people have the ability to spend more. Wealth is increased and more widely distributed among classes. The economy and quality of life benefit. Free markets work best when the demand for goods and services are high and are able to be satisfied by the supply.

Critics of free market economies argue that this system has too many disadvantages to succeed. Select companies can become dominant and form monopolies, increasing the prices of goods and services and decreasing wages. Wealth is not distributed equally and there is minimal regulation of price and product quality. Free markets may also widen the gap between the rich and the poor and promote unequal advantages because the rich can often better provide greater opportunities for their offspring.

Free markets often require a system of checks and balances and rely on the consumer to be both selective and rational. While both critics and those in favor of free markets present good arguments, truly free markets may be difficult to achieve due to the tendency of monopolies to form and government to interfere.