Question

In: Economics

What is better for economic growth- the free market or government or both? Please argue each...

What is better for economic growth- the free market or government or both?
Please argue each point and explain the rational behind the choice.

Solutions

Expert Solution

A free market is a place where there is no government regulations on producers or consumers, putting the demand and supply of goods and services in private ownership.

The producers are free to set prices of the commodity to be sold in the market as per its demand and competition.

They are free to set the wage-rates as high or as low as per their profit margin is concerned.

There are various advantages of a free market :-

i) it creates a competitive market for producers which makes them invent new and better goods as to be the best.

ii) more production in an economy leads to economic growth

iii) it gives every individual the choice of what to produce, how much to produce and for whom to produce, followed by a similar consumption pattern too.

Disadvantage of Free Market :-

There is only one major disadvantage of a free market where a government must needs to intervene inorder to eradicate inequality i.e., in this type of market condition the individuals having more capital and resources are always in a win-win situation. Whereas the small industries and new startups have to struggle a lot to get a portion of buyers in the market.

In such cases the government must come up with several schemes and programs to provide small scale industries and new startups a platform where they can put up their issues and get them resolved by the authorities. They should be given all the resources needed in the process of manufacturing and production at a subsidised rate. Also, easy availability of capital at lower interest rates without any collaterals should be provided to them through various government shcemes.

Hence, Free Market is good but at places government intervention and regulations are also necessary for an economy to grow in an appropriate manner.


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