What are the advantages and disadvantages of a free market economy?

What are the advantages and disadvantages of a free market economy?

In reality there are no perfect free market economies. Even in countries like USA considered to be champions of free market, there are many areas of government control. For example there are laws intended to check unfair trade practices. Also there are considerable restriction on what can be imported and how much quantities through the mechanism of import quotas and tariffs. Then there are provisions like anti dumping laws.


This proves that free economy has its advantages as well as limitations.

Advantages

The biggest advantage of free market economy is that it gives the people the power of choice. They have greater freedom to choose how they want to spend their income. Another major advantage is that it makes best use of individual entrepreneurial abilities, which it also encourages.

Disadvantages

Major problem is that to be most effective it needs some ideal environmental conditions like full, free and instantaneous availability of all relevant information to all buyers and sellers. It also requires complete freedom to manufacturers from one industry to another. Perfect conditions like these are possible only in theory.


Lack of these ideal condition makes free market mechanism ineffective in many ways. Thus monopolies and oligopolies develop, that may act against the interest of the consumer. Also we cannot always take it for granted that what consumer want is in his or her best interest. For example, no reasonable person will say that drugs should be freely sold to people who want to buy it.


Another major limitation of free market economy is that it has no mechanism to reduce the disparities between the haves and have nots. It just creates a system in which everyone ears as per his ability. Actually because of the imperfection in market mechanism, free economy tends to further increase the disparities between people.