The (Free) Market System (Cambridge (CIE) O Level Economics)

Individuals have the right to purchase the factors of production

Individuals are free to start their own business

Firms are free to decide what they are going to produce, how, and for whom

Workers are free to decide who they are going to work for

Consumers decided what goods/services best meet their wants/needs

Entrepreneurs maximise profits

Workers maximise wages

Consumers maximise their well-being/satisfaction

A pure market economy has no government intervention

Most free market economies have a low level of intervention, usually in the form of taxation, provision of defence, healthcare and education

Changes in prices allocate scarce resources

Rising prices indicate a shortage of resources and falling prices indicate a surplus of resources

Profit incentive motivates people to work or develop entrepreneurial ideas

Greater variety of goods/services

Competition leads to better quality of goods/services

Competition leads to lower prices of goods/services

Competition encourages innovation and product development

Profits, income and wealth are unlimited resulting in better standards of living

More efficient use of scarce resources

Wealth gets concentrated in the hands of the few as they are able to keep buying up the scarce factors of production

This increases inequality such that the gap between the rich and the poor continues to grow

Sometimes product quality falls as firms lower quality standards in order to increase profits

Workers get exploited

Resource depletion and environmental degradation are often ignored

Monopolies develop as firms increase market power through mergers and acquisitions

This leads to exploitation of consumers and supply chains