...MSc Development Studies Perspectives of Development Presentation Assignment: The Free-market Theory/The Free Enterprise Theory/Economic Liberalism Key Words: Laissez faire, Adam Smith’s ‘invisible hand’, liberalism, supply and demand, nationalization, privatization, deregulation, rational choice liberalism, neo-liberalism Between 1970 and the last decade before the millennium, there took place a remarkable and dramatic change in the attitude towards the role of the state in economic activities. According to Shutt (1998), during the late 1950 and 60’s, there developed a near consensus among economists especially those linked to the Chicago School of Thought that laissez-faire capitalism was the dominant economic system and that deviation from it was untenable and unsustainable. The argument was that in order to achieve a modicum of development all countries must dedicate themselves to establishing fully liberalized economic, political and cultural systems in which the state plays a minimal role or simply put that of an adjudicator. The rise in what came to be popularly known as the free market economy owed/s much to the failure of the economic models based on extensive state intervention (this was particularly so after the Second World War) to deliver adequate levels of prosperity or security as was signified following the fall of the Soviet Union. As will be argued in this paper using theories from Peter Berger (1985) and Hernando De Soto this apparent logic...
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...ECONOMIC SYSTEMS Assignment by: Fatima Amjad 0050 Elaf Anwar 0078 Sania Raza 0086 Introduction: Economic systems are the means by which countries and governments distribute resources and trade goods and services. An economic system must define what to produce, how to produce it and for whom to produced it. They are used to control the five factors of production, including labor, capital, entrepreneurs, physical resources and information resources. Different economic systems view the use of these factors in different ways. The world's economic systems fall into one of three main categories: market economy, command economy and mixed economy; however, there are unlimited variations of each type. MARKET ECONOMY: Market economy is also known as capitalism or the private enterprise system. The central thought of this system is that it should be the producers and consumers who decide how to utilise the resources. It is a system of society wide coordination of human activities, without central command. Thus, the market forces decide what to produce, how much to produce and for whom to produce. The efficient working of a free market economy requires that the producer firms must have incentives to work hard and produce goods and services at the lowest possible cost per unit of output. Market economies provide incentives to the firms and individuals by recognising and enforcing the property rights...
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...others depend on their government to act in their best interest. Depending on what country you call home, you either participant in a free market economy, a controlled economy, or a mixture of both. In this report we are going to look at what creates each type of economy and where we can find examples of each within the world. First we are going to analysis the characteristic of a Free Market Economy. In a free market, the government’s role is to “make sure that the market is stable enough to, properly, conduct business” (Freidman). In purity, the system hopes to “eliminate subsidies for industries, the pre determination of prices, and the amount of regulation controlling certain industry sectors”(Freidman). The implementation of a free market introduced individual property rights, which allows citizens to voluntarily exchange property/resources at a price arranged solely by the mutual consent of the buyer and seller. The seller is free to choose if the price being offered is worth their property; without threat of physical force, fraud, or coercion by a third party. It is for this reason that in a Market Economy, Capitalism prevails. The driving force behind a capitalist market is the entrepreneurs desire to turn a profit. Another major characteristic of a free market is free competition. This basic rule of a fee market states that people are free to compete without interference from the government...
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...ECON224- Unit 1 DB Cheri Bolin July 19, 2011 Proponents of free market systems argue that free enterprise leads to more efficient production and better response to changing consumer preferences. Others point to the fact that markets are not perfect. Before beginning my classes, I really hadn’t thought about the economy other than the hardships it has brought my family and I over the past several years. After completing Microeconomics I had a bigger picture of the “small” part of our economic system. The inner workings of our economy and its effects on our country as a whole, somewhat fascinated me. I really do not know much about free markets or free enterprise but what I do know, I do have an opinion on. I agree yes- free markets are not perfect but with that said, I believe that is why they work so well. Now, there are some good and bad qualities of a free market and enterprise, just like everything else in this country. In my opinion, other markets and enterprises, such as protected or forced markets are incorrect. When individuals put decisions, basically our well-being, in the hands of our government and politicians, they are asking to be told what, when and how to live their lives. Now don’t get me wrong, I do believe that there are some great laws, we have in place but most of them are downright ignorant. If we had the choice as individuals whether we would prefer a free market and enterprise, I am sure that 75% of the U.S. would be all for it. The ability to...
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...economic systems that govern economies around the world. 3 Economic Systems There are three types of economic systems that govern economies around the world. These are Traditional Economy, Market Economy and Command Economy. 1. Traditional Economy: This economy system is based on traditions. Economic decisions are based on customs, beliefs and traditions of the community, family, clan or tribe. At one time most people lived in traditional economies. In modern times this system still exists in rural and non-developed countries. Under this system, economic decisions are based on customs, religion and culture.. An Individual’s roles and choices are based on customs of past generations. This economic system often uses bartering and trading of goods although this may be limited because there is very little surplus produced. A disadvantage of this system is that it tends to discourage modern technology and the lack of progress tends to lower the standard of living. As a result modern technology is not prevalent in this type of economic systems The supporters of this type of economy believe that this system offers the advantage of stability and preserves the spiritual and cultural aspects of life. To summarize individuals in this system base their decision on past customs as opposed to having the freedom in making economic choices 2. Market Economy: This system of economy is based on supply and demand. It represents a free market system where persons are free to buy...
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...Social Problems and the Free Market: A Brief Look at Illegal Drugs and Its Market Nicola Jones Baker Kaplan University Professor T. Ayanou, PhD February 17, 2015 The present research report seeks to show the relationship between a “free market” economy and the acquisition and dispensing of illegal drugs. This report will begin with a general look at what constitutes a “free market” economy and how its aspects of supply and demand are the very cornerstones of its existence. After discussing the concepts of supply and demand, the author will then address how the tenants of supply and demand relate to individual freedoms and individual competitions. Following this section of the present report, the author will seek to discuss illegal drug markets. In the final and closing section of this research report, the author will argue that the social problems created by illegal drug addiction could be managed in a “free market” economy that views addiction as a treatable disease rather than a criminal offense. The fundamental underpinning of a free market system is the competition it generates among those who are vying for the consumers’ dollars. The goal of the free market is for person (A) to provide a good or service that is wanted by customer (B). Person (A) and customer (B) then negotiate a price for that particular good or service. If person (A)’s price is too high or the good or service is inadequate, customer (B) then has the right and freedom to go to person...
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...Chapter 4 The economics of Financial Reporting Regulation The case for unregulated markets for accounting information * Support for unregulated marketing all relate to the incentives for a firm to report information about itself to owners and to the capital market. * Agency theory explains why incentives exist for voluntary reporting to owners. * Wider voluntary reporting to the capital market is explained by signaling theory * The arguments supporting unregulated markets for accounting information are largely deductive in nature. Agency Theory * Predicts and explains the behavior of parties involved with the firm. * It conceives of the firm itself as a nexus of agency relationship and seeks to understand organizational behavior by examining how parties to agency relationships within the firm maximize their own utility. * One major relationship is between the management group and the owners of the firm. * Managers are hired to administer the firms’ activities. * Owners and Managers may have different goals and may not be in perfect agreement. While owners are interested to maximize return of investment and security prices, managers have a wider range of economic interests and psychological needs. Because of this conflict, owners communicate with managers in such a way as to minimize conflict between the goals of two groups. * Costs relating to monitoring management reduce managers’ compensation. Therefore managers have an...
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...Mixed Economy A mixed economy is an economic system that incorporates aspects of more than one economic system. This usually means an economy that contains both privately-owned and state-owned enterprises or that combines elements of capitalism and socialism, or a mix of market economy and planned economy characteristics. This system overcomes the disadvantages of both the market and planned economic systems. Features * Resources are owned both by the government as well as private individuals. i.e. co-existence of both public sector and private sector. * Market forces prevail but are closely monitored by the government. Advantages * Producers and consumer have sovereignty to choose what to produce and what to consume but production and consumption of harmful goods and services may be stopped by the government. * Social cost of business activities may be reduced by carrying out cost-benefit analysis by the government. * As compared to Market economy, a mixed economy may have less income inequality due to the role played by the government. * Monopolies may be existing but under close supervision of the government. http://www.dineshbakshi.com What Are The Advantages And Disadvantages Of Mixed Economy? The mixed economy refers to such an economic system wherein two the sector exist and function for achieving national objectives. The two sectors are the public sector and private sector. Both these sectors exist and function for achieving national objectives...
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...An economic system is an organized approach to producing and distributing goods and services. It is an organize way to answer the three economic questions of what, how and to whom to produce. Although every country must have an economic system to answer these three economic questions, their method of producing and distributing largely depends on the country’s historical experience, form of government, objectives and ideologies. To some people, government intervention in the economy are consider significant to protect against the worst elements of capitalism while others thing that such regulations are unnecessary invasions of their freedoms. To what extend should the government get involve in the economy. The government should take a limited role in the economy while allowing private enterprises because such involvement would eliminate the negative aspects of capitalism while adopting the positiveness of Socialism. This would benefits the economy in variety of ways. Firstly, government regulations allow businesses to remain in the private hands while removing some of the worst abuses of pure capitalism. Secondly, a government intervention protects the consumers, producers, and the community as a whole. Finally, limited government involvement prevents crises such as inflation, unemployment and depression. The nineteenth century period was a memorable period in the history of human kind. The industrial Revolution transformed society from an agricultural to a mechanized society...
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...technology contributed to the globalization of markets and production? Would the globalization of production and markets have been possible without these technological changes? Answer: Changes in technology have contributed to the globalization of markets and production by bringing the world closer. I believe that improvements of technology in internet, microprocessors, and transportation not only make our lives more convenient, but also enable the growth of globalization of production and markets. For example, improvements in transportation technology have made it easy for companies like Coca-Cola, Levi Strauss, Sony and McDonalds to make their products available worldwide (Charles W.L. Hill, 2013). Changing technology; has also increased the rate of production, allowing goods to be produced and distributed more efficiently. Similarly, if communication does not exist, people around the world will not get the opportunity to connect and do business together. The ability to negotiate around the world has facilitated by improved communications technology. Moreover, the decreasing cost of communication makes coordinating and controlling global environment even more effective and efficient (Charles W.L. Hill, 2013). Most importantly, the impact that Information Technology has created has been tremendous. Companies now market worldwide by creating a website on the Internet. I strongly believe, that the globalization of production and markets may have been possible without improvements...
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...Nations". It was used to explain what a free market is. A free market is a market system in which the prices for goods and services are set freely by consent between sellers and consumers, in which the laws and forces of supply and demand are free from any intervention by a government, price-setting monopoly, or other authority. Within the healthcare market, a heavily regulated market, there was an opening for VIP care for those that could afford it. It is unregulated and should not be due the fact that the outcome of money paid for the services, pay for bettering the hospital. The Benefactor Society A free-market economy is an economy where all markets within it are unregulated by any parties other than those players in the market. In its purest form the government plays a neutral role in its administration and legislation of economic activity, neither limiting it nor actively promoting it (Meiners, Ringleb, & Edwards, 2011). Within this economy the healthcare market is heavily regulated which causes prices to be high and as well as needs and wants from consumers. The upper class consumers expect a certain level of attention and care. Because of these expectations there was an opening for a new market, VIP patient care. A term used by Adam Smith to describe the natural force that guides free market capitalism through competition for scarce resources is called the invisible hand. According to Adam Smith, in a free market each participant will try to maximize self-interest...
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...Some may argue that capitalism is a cruel economic system that has been known for the corruption, exploitation of poor people and where greed overcomes anything good. However, the majority will agree that capitalist system is best system in the world of economics. It drives people to do better, as the certain amount of effort will bring the same level of result. There are examples in the history where individual’s wealth was affected by the corporate greed, but with the government regulations history will not repeat itself the same way. Capitalism is all about choices and these choices are made based on the amount of economic benefit we receive at the end of the trade. The connection between the right to own property and the individual liberty has always been emphasized by classical liberalism. Whatever man produces through his honest work, through his own efforts, or what he acquires through voluntary trade with others must be considered rightfully his. The idea behind the free markets is to allow each individual to use his own knowledge and his abilities to improve financial freedom, and based on the knowledge and ability some men may generate more wealth then the others. When the founding fathers agreed that all men are created equal, the liberty, they thought, would come before the equality. The capitalism may not deliver equal earnings for everybody; it does provide an equal opportunity to earn higher income (EBeling p.607). In “A Capitalist Conception of Justice”, Irving...
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...DEFINITION of 'Free Market' A market economy based on supply and demand with little or no government control. A completely free market is an idealized form of a market economy where buyers and sellers are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation. In financial markets, free market stocks are securities that are widely traded and whose prices are not affected by availability. In foreign-exchange markets, it is a market where exchange rates are not pegged (by government) and thus rise and fall freely though supply and demand for currency. BREAKING DOWN 'Free Market' In simple terms, a free market is a summary term for an array of exchanges that take place in society. Each exchange is a voluntary agreement between two parties who trade in the form of goods and services. In reality, this is the extent to which a free market exists since there will always be government intervention in the form of taxes, price controlsand restrictions that prevent new competitors from entering a market. Just like supply-side economics, free market is a term used to describe a political or ideological viewpoint on policy and is not a field within economics. DEFINITION of 'Capitalism' A system of economics based on the private ownership of capital and production inputs, and on the production of goods and services for profit. The production of goods and services is based on...
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...interrelate? Use a specific example to explain. Macroeconomics and Microeconomics are both dealing with economics but indifferent levels, Macroeconomics is the study of a country's overall economic issues and Microeconomics deals with economics on an individual consumer,families and individual businesses. They can affect how much you can purchase for your family and what is available for you to purchase for your family. 3. What are the fundamental elements of the free market economic system? How can businesses thrive within this system? 1. The rights to own a business and keep after-tax profits 2. The right to private property 3. The right to free choice 4. The right to fair competition Free Market economies allows businesses to thrive by allowing owners to keep the profits, encouraging growth. 4. Describe the 4 degrees of competition within the free market system. Offer 2 to 3 examples of each type of competition by filling in the chart. Pure Competition: A market structure in which a very large number of firms sell a standardized product into which the is very easy in which the...
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...Contents 1 a) Examine the arguments in favour of a free market system of resource allocation. ..................................... 1 1 b) Explain how market failure can occur and suggest how the government in a country of your choice has sought to correct those market failures. .............................................................................................................. 4 ‘Too big to fail, too big to bail’........................................................................................................................... 5 2. A) Examine how the government of a country of your choice has adjusted its monetary and fiscal policy in response to the world’s downturn. Explain the reasoning behind these adjustments. ........................................ 7 Suggestions offered by EU ................................................................................................................................. 8 Applying fiscal and monetary policy by the Government .................................................................................. 8 Conclusion .......................................................................................................................................................... 9 2 b) Indicate the problems which are created for the government’s finance as a result of it seeking to avoid deeper recessions. What solutions might you recommend?.............................................................................. 10 What...
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