Advantages of a free market system, Managerial Economics

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Advantages of a Free Market System

Incentive:  People are encouraged to work hard because opportunities exist for individuals to accumulate high levels of wealth.

Choice:      People can spend their money how they want; they can choose to set up their own firm or they can choose for whom they want to work.

Competition:  Through competition, less efficient producers are priced out of the market; more efficient producers supply their own products at lower prices for the consumers and use factors of production more efficiently.  The factors of production which are no longer needed can be used in production elsewhere.  Competition also stimulates new ideas and processes, which again leads to efficient use of resources.

A free market also responds well to changes in consumer wishes, that is, it is flexible.

Because the decision happen in response to change in the market there is no need to use additional resources to make decisions, record them and check on whether or not they are being carried out.  The size of the civil service is reduced.


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