A Level Economics
Notes
Key concepts and evaluations
Evaluate the view that a free market economy is always more
desirable than a command economy.
Point 1- Free market will result in highly efficient economy
Free market will result in a highly efficient economy. A free market economy is characterised by no
government intervention advocated for by Adam Smith. The free market encourages great
competition which may in extreme mean perfect competition. For firms in perfect competition they are
price-takers where P=MC. This is because firms cannot produce above MC as other firms in the
market will simply undercut this price and consumers will purchase from them. Firms cannot go below
MC as they will be making a loss which may not be sustainable. Therefore, firms in perfect
competition operate where P=MC and so markets in a free market economy are allocatively efficient
as they produce at P=MC. Furthermore, in the long-run firms will be productively efficient.
Notes
Key concepts and evaluations
Evaluate the view that a free market economy is always more
desirable than a command economy.
Point 1- Free market will result in highly efficient economy
Free market will result in a highly efficient economy. A free market economy is characterised by no
government intervention advocated for by Adam Smith. The free market encourages great
competition which may in extreme mean perfect competition. For firms in perfect competition they are
price-takers where P=MC. This is because firms cannot produce above MC as other firms in the
market will simply undercut this price and consumers will purchase from them. Firms cannot go below
MC as they will be making a loss which may not be sustainable. Therefore, firms in perfect
competition operate where P=MC and so markets in a free market economy are allocatively efficient
as they produce at P=MC. Furthermore, in the long-run firms will be productively efficient.
