Question 8 Answer
Students must outline what characteristics or practices in the free market economy facilitate economic development. If they don’t believe it facilitates it they must show that as well using proof from theory and examples. They must demonstrate understanding of economic development in answering the question.
Economic development speaks to improvement in the quality of life of the people in a country.
They should answer the question does it facilitate:
-Access to basic amenities such as health, education, water, light etc.
-Are income levels appropriate for persons to afford a basic meal within this economic system.
-Does it facilitate improved technology and methods of production, research and development and efficiency in production.
-What about a healthy environment? Is this encouraged in the free market economy?
In Free Market Economy/Capitalist Society:
-Price system determines what and how much goods are produced, hence if the wealthy mainly demand a particular good this will drive up the price of that good making it unaffordable or lower income persons. Luxury items may then be produced in greater quantities than those consumed by the not so wealthy.
-Income inequality usually results as only those who can afford to produce the goods that are demanded will earn business and monopolies may arise causing small firms to exit the industry because they don’t receive the benefit of large scale production.
-Essential goods will be under-produced because of their unprofitability and the inability to exclude persons from utilising public good and the expenses associated with merit goods such as health and education. De-merit goods such as cigarettes and alcoholic beverages, on the other hand, may be produced in greater quantities since they cost less to produce and are usually demanded in great quantities. De-merit goods are not beneficial to society but merit goods and public goods are for the well being of citizens but these are under-produced.
-Negative externalities such as pollution raise health concerns. Disposal of garbage by firms in gullies increasing the infestation of rats.
-Strong firms may collude and form a monopoly raising prices of goods and services making goods unaffordable and difficult for citizens to survive – cost of living is high.
Conclusion: the market left up to itself will result in poor living conditions for citizens of a country, high income inequality, high cost of living, lack of essential services and public goods such as education, health services and proper street lighting. Candidates can use specific examples from the Caribbean to strengthen their point.