Man 372 Free Market Economies

Joseph Grant

MAN 372 GS

Assignment 3

Q1: Free market economies stimulate greater economic growth, whereas state-directed economies stifle growth.

Free market economies stimulate greater economic growth than state directed economies. The text describes a free market as a “Market Economy” and state-directed as a “Command economy”. A free market economy stimulates growth through competition. The consumer is the driving force behind the economy because it is the purchasing power in which the market responds to. “Production is determined by the interaction of supply and demand and signaled to producers through the price system.” (Hill, 2011) The free market can be easily manipulated if it is not regulated to spur competition. The threat of a monopoly for any single product allows the company or firm to regulate supply in order to maximize their profit margin and the consumer maybe forced to pay whatever the producer demands at the time. “The role of government in a market economy is to encourage vigorous free and fair competition between private producers.” (Hill, 2011) Laws have to be put in place in order to mitigate market manipulation.

In a state-directed economy the government makes all of the decisions for the consumer. The government sets the price, manages the supply ill regardless of the demand. The profits allocated from sales are managed by the government and utilized “for the good of society”. (Hill, 2011) There is little to no fear of a business failing, so there is little to no motivation for a company to make any advancement to become more efficient and consumer needs are not a necessity. In a command economy growth can easily become stagnant.

The best way to stimulate growth in an economy is to have a “Mixed Economy”. A economy the practice both a free market structure and command market structure where society deems necessary. I good example where government intervention maybe needed in an economy is in the healthcare market and in...