b) Advantages and disadvantages

b) the advantages and disadvantages of a free market economy and a command economy

free market economies

• advantages

  • profit incentive motivates people to work or establish firms

  • greater variety of goods and services + competition for sales = higher quality goods and services

  • resources are allocated efficiently through the laws of supply and demand

• disadvantages

  • concentration of wealth among the few → increased class inequality

  • firms may lower product quality to increase profits

  • resource depletion and environmental damage may be ignored

  • high competition → forms monopolies → workers and consumers become exploited

command economies

• advantages

  • social equality is prioritised over profit maximisation

  • elimination of worker and consumer exploitation → equal wages + little to unemployment

  • resources can be allocated to urgent priorities

• disadvantages

  • equal wages → little to no incentive to acquire difficult qualifications for highly skilled careers

  • no competition → less innovation and product development

  • excessive government intervention → inefficient allocation of resources