Efficiency of Different Market Structures
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November 4, 2022Efficiency of Different Market Structures
| Question 1
Since the recent Great Recession of 2007-2009, there has been increasing disillusionment with the free market system. Briefly define “free market system” and identify and describe at least three of its major concepts or attributes. Then, critically analyze the view that the free market system is the best and only realistic alternative for determining the allocation of resources in an economy. Provide evidence to support your analysis. Question 2 Every society, regardless of its wealth and power, must make certain choices about production and distribution. Specifically, every society faces three basic economic decisions:
Briefly explain how these questions are answered in your country. How does the availability of resources in your country influence the economic decisions for individuals, organizations, and government? Question 3 Evaluate the economic efficiency of different market structures and their effect on consumers. To answer this question:
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Questions 1
The generation of 70th-80th still remembers the epoch of communism. The Soviet Union was considered to be stable and solid system, competing with the China and holding the cold War with USA. It was a phenomenon: for the short period of time, country ruined after the Second World War could rebuilt the main industries again, just guided by the pure enthusiasm. The government was controlling all: market, media, and companies. Tough censure was everywhere: not to destroy the image of government in front of people, and to impose the style of life and needed behavior. Ridiculous, but the old generation reminds this time with the nostalgia – long lines in the central supermarket in order to buy the same goods, as there was no variety and choice. The competition on the market was forbidden and consumers were happy with the available products. All the resources were allocated as per government order and were offered for affordable prices.
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Nowadays, the society is trying to build the ideal market relations, free from any interaction from the government side. The free market system, according to its nature is a weal, but after appears marketing and unscrupulous competition and manufacturers. On the free market there is no control and involvement from the government side, which gives an opportunity to set the price on the market according to the supply and demand. Government is playing the role of the reference, when there is a need to protect copyright. Participants deciding by themselves: what produce and in what quantities to manufacture; and what goods and service to buy. The free market system due to it flexibility, allows satisfying better the needs of society in goods and services (Business Dictionary 2015).
According to Adam Smith, relations on the free market are regulated and stabilizing by the invisible hand (Investopedia 2016). Desire of individuals to satisfy their personal rational needs, bringing social useful results. From the above we can summarize, that the free market it is mainly:
- private property and high competition, so the sellers are trying to present the best goods and services in order to profit;
- high variety of goods and services to satisfy any demand and taste;
- Limited influence on the market processes from the government side (Moffat 2016).
However, absolutely free market does not exist. The free market – is an idealized abstraction. All economies are located somewhere in the middle, someone is less controlled by the state, and some more. The degree of economic freedom of a country is assessed index of economic freedom. As we see from table 1, only few countries in 2016 have an indicator above 80%. The leadership is by small countries Hong Kong and Singapore, that long period of time were in shadow, but now are the main suppliers for the world economy (Economic Freedom 2016).
