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Role of Government in Controlling Free Market


A free market economy operates to the benefit of both consumer and producer to achieve the most efficient outcome, and therefore there is no role for a government to play in controlling the market. Consider the extent to which this statement is correct. [25]


Market Structures and Competition

[CIE A level June 2018]

Preview Answer

Step ➊ : Describe ‘the free market’ and ‘efficiency’ in the introduction.

It is often debated to what extent the free market economy operates to the benefit of consumers and producers. A free market is a type of economic system where most decisions are taken on the basis of demand and supply. There are no government restrictions in a free market. The free market is also able to achieve efficiency. Economic efficiency occurs where scarce resources are used in the most efficient way to produce maximum output. However, the free market does not always achieve efficiency and can cause market failures, there may be a need for government intervention.

Step ➋ : Explain how the free market benefits consumers and producers.

➤ 2.1 In a free market, there is consumer and producer sovereignty.

The free market benefits consumers as, with competition, producers are encouraged to produce what consumers want at a reasonable and affordable price. Consumers can enjoy a wider choice of goods and services.

The free market benefits producers as there is the absence of bureaucracy. Because free markets reduce cost and minimize red tape, they lead to more innovation via research and development.

Competitive firms in a free market will work to satisfy consumer demand and aim to gain an advantage over their competitors. To achieve this, they must operate as efficiently as possible

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