Question

Imagine you are a consultant who has been asked to summarize the strengths and weaknesses of Agoria, a nation with a pure market economy.

Which of the following would you include in your report as weaknesses of Agoria's economy? Check all that apply.

- Occupational choices can be restricted.

- Firms have no incentive to produce the so-called public goods, such as national defense, because private firms cannot prevent nonpayers from enjoying the benefits of public goods.

- People with no resources to sell could starve (income is distributed unequally).

- The economy experiences economic fluctuations, which are alternating periods of expansions and recessions in their level of economic activity, especially in employment and production.

Answer 1

In a purely free market economy, the law of supply and demand, rather than a central government,regulates production and labour.The profit motive drives all commerce and forces businesses to operate as efficiently as possible to avoid losing market share to competitors.

From the given statements, following are the weaknesses of a pure free market economy.

*People have no incentive to produce the so called public goods such as national development bacause private firms can't prevent non payers from enjoying the benefits of public goods.(Firms are driven solely by profits,so they will definitely hesitate to provide public goods as )

*In a free market economy, income is unevenly distributed.And people with no resources could starve(The only way they can avoid starvation in free market economy is by selling their labour.Free market economies are accompanied by great disparities of income and wealth because there is no effort to redistribute income via taxation or provision of services to poorer members of the society)

(Note:>Rawls has stated that markets enable citizens to freely choose occupations,careers and where they work.so there is no restrictions on occupational choice.

> A pure free market economy will definitely have an invisible hand.Market is self correcting . whenever there is a mismatch between demand and supply ,suppose there is oversupply, market corrrects the imbalance by allowing resources that produce oversupply to go the wall)