owledge.These are the problems most commonly associated with a free market economy. Lack of competition and high profits may remove the incentive for firms to be efficient because they may feel that they can rest on their laurels without fear of damaging their profits. Power and property may be unequally distributed. Those who have power and property will gain at the expense of those without. This could become a vicious circle leading to a large gap in the distribution of wealth. The practises of some firms may be socially undesirable, while still being profitable. Some socially desirable goods would simply not be produced by private enterprise although they may be an integral part of our society. E.g. a Lighthouse A free market economy may lead to macroeconomic instability. There may be periods of recession with high unemployment and falling output, and other periods of rising prices. Ethical objections, that free market economies, by rewarding self-interest behaviour, may encourage selfishness, greed materialism, and the acquisition of power.Command EconomyTo analyse the effectiveness of the price mechanism we should compare it to its alternative. The command economy has some distinct features, which clearly separates it from the free market.The command economy works on the principle that instead of having to rely on the decisions of millions of individuals, the government takes an overall view of the economy in the interests of society as a whole. With that view it can direct the nation's resources in accordance with specific national goals.The thought is that high growth rates could be achieved if the government directed large amounts of resources into investment. Unemployment could be largely avoided if the government carefully planned the allocation of labour in accordance with production requirements and labour skills. National income could be distributed more equally or in accordance with needs. The social repercussions of prod...
