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

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

  • an efficient use of resources through the law of supply and demand

• disadvantages

  • wealth is concentrated among the few = class inequality worsens

  • firms may lower product quality to increase profits

  • resource depletion and environmental damage may be ignored

  • monopolies may develop as a result of competition = workers and consumers become exploited

command economies

• advantages

  • social equality rather than profit maximisation is the goal

  • consumer and worker exploitation can be avoided = equal wages and little to unemployment

  • resources can be allocated to urgent priorities

• disadvantages

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

  • no competition = less innovation and product development

  • central planning causes shortages and surpluses = lack of efficiency