Custom «Free Market Economy» Essay Paper

In a free market economy, the forces of supply and demand are left to regulate the economy unlike leaving the sensitive job in the sole hands of the government. In this economic system, all resources are left under the ownership of individuals hence the decisions that are made regarding the allocation of resources are left under the hands of the individuals hence limiting the power soft e government in this regard. As had earlier been hinted, the forces of supply, demand and competition play a very crucial role in determining the commodity to be produced, the quantity of the commodity to be produced and the price to charge the customers for the goods.

In regard to the differences that are shared by the free market economy against its very opposite which is the planned economy, it is important to appreciate the fundamental fact that a free market economy is guided by principles of capitalism while on the other hand, the planned economy runs as a result of the principles of communism (Brayman, 2006). While it is in the hands of individuals to make choices due to the limited nature of resources, the government makes decisions about resources ion a planned economy. While the forces of supply and demand have been said to be the main determinants of price in a free economy, the government is the main determinant force of price hence it is in the power of the government to determine who buys a commodity and who does not buy the commodity in a planned economy. Owing to the strength that is attached to the forces of supply and demand the consumers in the free economy are set to determine what is produced according to their consumption trends while on the other hand in a planned economy, the government is responsible as part of its planning strategy to determine what is to be consumed.

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Given the fact that both the free market and the planned economies are all different types of economies that are extremities, it becomes very difficult to practice either of them in real life. As a matter of fact, it is very unrealistic to have either part or arm of the government completely being shut down in economic planning and management. It is completely unrealistic in the global economy that is highly competitive today to confidently operate an economy based on the mere fact that the forces of demand and supply are running the market while the government is totally incapacitated to intervene in any manner or even vice versa. By having an economic system that strikes a balance between the two extremes of a free market economy and the planned economy, an economic system is capable of enjoying the advantages that are derived form operating in either extreme of the economies while also avoid the disadvantages that are entailed by both the free market economies and planned economies (Edward, 2004).

The lack of freedom for consumers and producers which is the main feature in planned economies is an aspect that is highly avoided when dealing with a mixed economy. Another main fact that is detrimental in planned economies that is completely ignored when dealing with mixed economies is the fact that the government does not get to set the prices on goods and determining wages. This ends up in an economy where people are rightfully awarded with their input in the economy. On the other hand, with the free market economy, merit goods such as housing, health and education are not available for the poor and overconsumption of demerit commodities such as drugs as freedom to produce is at optimal level.

The prices of cereals hit high levels during the period around the year 2007 mainly due to the fact that there were poor rates of harvest and also the fact that e policy of 10 per cent age set aside was having a toll on the level of out put being realized in cereals. When the 10 per cent age set aside policy was established during the year 1992, it was as a responsive measure to correct the trend that was seeing the quantity of wheat being produced sky rocketing to levels that were now reaching surplus level. Too much was being produced for the market hence leading to waste of resources not only in the wheat itself but also in the monetary and time resources used to produce the wheat that could end up as waste? The trend though was set to change several years after and it soon came to pass in the year 2007. During this period in time, the quantity of cereals in the market fell below the demanded quantity meaning that people were experiencing a shortage in the market.

With such a position in the market, one could be led to the question "why" since the cereals products had for as long time been subject to surplus in the market. It can be explained that two main forces are responsible for the fact that the surplus that had once hit the market was now turning to shortage levels. Rising levels of population in the consumers together with the fact that the policy of 10 per cent age set a side was still in progress meant that definitely the demand and supply of cereals would soon reach the equilibrium level and even fall to the other extreme of deficit. These very low levels of supply with even higher levels of demand in the market could definitely lead to higher prices so that the highest bidders in the market walk away with the products (Sloman, Hinde and Garratt, 2010).

The European Commission is working on the assumption that by having farmers go back to the use of land that had been set aside under the 10% per cent age set aside land policy, the shortage in the supply of wheat which is consequently leading to high prices in the market could be adequately addressed. In my regard, this fact would not be achievable mainly due to three factors that are limiting the capacity of the proposal to rise up to the high expectation of the implementers. One of the facts is that the lands that were left for the 10% per cent age set aside land policy had very high levels of infertility (Sloman, Hinde and Garratt, 2010). As a matter of fact, according tote assessment that has already been done by the commission; the land would take a little while before hey return to full productivity. Considering this fact, it would therefore mean that the policy would have a bit of failure in as far as the sudden future is concerned. In the long term though, the land could have already picked up and produce the much needed wheat to increase the supply.

The losses incurred during the unproductive period would be passed on the buyers hence meaning that the prices would still be relatively high (Ikeda, 2007). On the other hand, it is also a cause of concern to the European Commission that the high rises in price can be very much in relation to various factors apart from the cereals. For in stance, the high rise in prices of bread has been indicated to have very little relation to wheat. As a matter of fact, only 4% of the cost of bread is accounted for by wheat. It is therefore a very misled assumption that only by changing the supply of wheat into the industry then the prices of the products would be reduced to the level considered normal. In fact, the best thing that ought to be done is to consider carrying out a more detailed research so as to find out the real components that are accountable for the increase in prices of the wheat products. With such detailed and accurate results, the strategy adopted would most definitely suit the remedy adopted by the European Commission.

In the future years, the prices of wheat are still bound to be affected by other factors apart from the supply of wheat. The prices of wheat so far in the market just like other normal product in the marker are affected by other issues that are either linked to wheat directly or indirectly. First of all, the alternate usage of land that farmers may be diverged into could heavily affect the prices of wheat. The European Commission has been very categorical of the fact that farmers will not be forced into cultivating their land for wheat in an effort to restructure the supply of wheat back to equilibrium (Miller, 2009). The bio fuel industry that is posing a very potential excellent market for corn and other products could soon attract more farmers. Weather conditions can also be said to be the reason as to why changes in fertility levels of the land may change hence being a huge factor to determine the causes of changes in the supply of wheat.