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Mix Of The Uk Economy Essay

1321 words - 5 pages

Mix of the UK Economy

The UK economy combines factors of both a free market economy and one
which is fully planned. This brings both advantages and disadvantages
as it limits the power of market forces, but on the other hand
restricts the influence the government has over supply and demand.
Since the 1980s the government in the UK has steadily reduced its
involvement in the economic system. This has been done through
privatisation, which means handing over control of services to private
companies and investors, for example British Gas or Railtrack.

A free market economy revolves around the central concept of supply
and demand. Consumers make individual decisions about purchases for
their own self-interest whilst producers aim to make the largest
profits by supplying exactly what the consumers desire. Resources are
not allocated by the government or any state organisation but via the
price mechanism. This means that the producers determine the supply
and the consumers determine the demand, the combination of these two
factors determines the price of a product.

A key feature of a market economy is the freedom of choice and
enterprise. This means that producers are free to obtain economic
resources for use in production and are then able to sell their
product in whichever way they choose. These people are known as
entrepreneurs and are only seen in a market economy. Another major
difference between free market and planned economies is the principle
of self-interest. The idea of capitalism is that individuals are free
to act as they wish and this translates into the concept of an entire
economy being built around the idea of self-interest. Consumers will
only purchase items which they feel will benefit them and companies
will only produce things if they believe they will eventually make a
profit. This is not seen in planned economies which are solely based
upon the benefit of the state and its citizens as a whole rather than
individual satisfaction.

The advantages of a free market economy are that resources are
allocated through supply and demand, meaning there is not as much
wastage as in a planned economy as decisions are not taken so far in
advance and as a result the economy as a whole is less susceptible to
adverse purchasing trends. The lack of government influence also means
there is much more freedom and things which the government may not
have seen as essential are available to the consumers. The effects of
competition which are not prevalent in a planned economy result in a
price motive, meaning there is an incentive for companies to reduce
their prices if it results in increased sales.

The disadvantages of the market economy are the often very serious
effects of market failure this when the market either does not provide
or is unable to supply goods or services...

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