The (Free) Market System (CIE IGCSE Economics)

Property Ownership

• Individuals have the right to purchase the factors of production
  
  

Freedom of Choice

• Individuals are free to start their own business
• Firms are free to decide what they are going to produce, how, & for whom
• Workers are free to decide who they are going to work for
• Consumers decided what goods/services best meet their wants/needs
  
  

Self Interest

• Entrepreneurs maximise profits
• Workers maximise wages
• Consumers maximise their well-being/satisfaction
  
  

Limited Government Intervention

• 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 & education
  
  

Price Mechanism

• Changes in prices allocate scarce resources
• Rising prices indicate a shortage of resources & 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