Free Market Economy

 Also known as capitalist system, free market

enterprise,price mechanism,market economy

 The allocation of resources is determined by

the force of demand and supply ( consumer
and producer).

 Government play no part in this economic

activity.
 Producers will produce goods and services
that are profitable and with demand.
 Consumers can choose what to buy – what

they affort, satisfy and give greatest benefit.

 People can buy, hire and become producer of

goods and services demanded by the market.

 Change in demand and supply result in

change in price. Therefore D and S =

equilibrium.
 There is Freedom of Choice.
 Consumer have power to decide what to

produce and to choose where to buy

 The price system makes sure that shortages

and Surpluses can be controlled.

 The government play no part.Therefore no

bureaucracy and red tape.

 Its not possible to produce some goods and
service through the price system eg.Public
Goods.
 People might choose to spend their money

for short term rather for long term.

 With no government intervention, producer

can produce good and services in

unnecessary way
 Increase competition among producers. Small

firm will be taken over!

 Unequal distribution of wealth!
 Gives five differences between Free Market
Economy and Centrally Planned Economy.

Copy and answer the question on a piece of

paper!
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