The of economies in which business operate.

The
free market can be seen as “laissez-faire” which is French for “allow to pass
or let go”, in other word to let things take their own course in this instance
businesses

The free market is the ones
most businesses prefer because it has minimal government intervention but there
are some limitations to the free market. This assignment will focus on
explaining the limitations by providing examples. Whilst trying to explain the
limitations of the free market this assignment will also explain the main types
of economies in which business operate. There are three main economies that
will be focused on. They are the free market in which consumers and businesses
run the market with no government intervention. The opposite of a free market is
known as a command economy, this is where the government has control over the
market. And finally, a mixed economy where the business and government work
together. A few other terms such as the private sector, the public sector and
voluntary sectors will also be touched upon.

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A mixed economy also known as
a “dual economy”, this is an economy where private sector businesses and the
government work with each other, with the government controlling the majority, and
share the means of production

The
public sector which is owned by the government provides basic items known as
merit goods which are often overlooked by people. These are provided free of
charge or subsided when used. Merit good will benefit the user and others when
consumed and one cannot stop others from benefiting from it. The government
will provide these, but they are also available from private businesses, usually
at a price. Healthcare is regarded as a merit good because it is not possible
to know when one might fall ill and when it will be needed, few people would
choose to invest in healthcare until the need arose and by then it could be too
late. An example of healthcare is that the United Kingdom has a national health
service for its residents, but individuals can opt to go to private health service
provider should they feel necessary. Another example of a merit good is education,
whilst the full benefit of education will not be recognised at the time of
learning it will however affect the user in so many ways. Education is not a
tangible good and cannot be measured but as an individual learns more the more
people he or she will benefit in the long term including them. People who will
benefit from just one individuals learning are family, friends, future employers,
and the business itself but also the consumers of that business will benefit. Inadvertently
that individual will also be helping the community and benefiting the government
because the better the job the more they will pay in tax. There are several
reasons explaining why there is a lack of merit goods in the free market. One of
the main reasons is that there is considerable “information failure” regarding
the benefit of consumption of private and merit goods. People will fail to
recognise the benefits of regular check-ups and how others will be protected as
well as themselves. Another factor is that most people only consider themselves
when buying or selling goods, so merit goods will not be included in their plans.
Merit goods may take time before people see the benefit in them. This is
certainly the case with education where the benefits are only seen a few years
after its completion. Families with low income will struggle to pay the full
price of merit goods and will under consume them, but society can only benefit externally
if as many people are as healthy and as educated as they can be. The diagram bellow
shows the cost and the benefit of merit goods in accordance to how much is
supplied by the free market versus the social benefit. The private benefit of
merit goods is expected to be higher than the actual benefit as users fail to
see the true benefit to them and society which results in them under-consuming