What are the disadvantages of a free market economy?
Answers
Public, merit and demerit goods
Public goods cannot be provided privately because of their two characteristics, non-diminishability and non-excludability. These goods have to be provided publicly. Even in a very free market, one of the government's few roles will be to provide defence, for example. But there may be a problem with merit goods and demerit goods. Merit goods, like health and education, tend to be under provided in a free market. Certainly in the USA the public health system is a 'last resort' system.
Unequal distribution of income.
For many, this is the big disadvantage of a free market economy. In a free market with very limited government, benefits will be low, the health service poor and schools under funded. If you start life with very little, and do not even get a good education, then there will be very little protection from destitution.
The environment
Free market economies are likely to produce more pollution, which is bad for the environment. Command economies can make sure that the production processes that they chose are as environmentally friendly as possible. They should be able to make sure that the level of output is the socially optimal level of output.
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