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Free price system: Pros & Cons

Feb 25, 2016 12:13 IST

    Banking awareness is an important section out of which several questions are framed  in the IBPS/SBI driven exams. Jagranjosh.com has prepared this article on one of the  important banking topic called ‘Free price system’.

    In free price system, the basic economic system is driven by Supply and demand primary drivers. This approach offers opportunities to the companies to produce and market goods & services as per the consumer demand. Government interventions such as imposing standards and trade regulations are either non-existent or kept to an extreme minimum.

    The free price system sometimes gets so competitive that poorer class of our society is unable to avail the Goods and services while businesses nourishes sue to competition on the other hand.

    In reality, there are no perfect free market economies. There are many areas that come under government supervision & to achieve it, various laws are forged to check the unfair means of trade. Above theory proves that the free price system has some advantages as well as some limitations.

    Advantages: -

    i. It reacts too quickly to the people’s needs.
    ii. It boosts the new technologies and methods for producing better goods & services.
    iii. Companies/manufactures are motivated to produce a wide variety of goods and services.

    Disadvantages: -

    i. Certain goods & services in a wide range/variety cannot be produced.
    ii. It may encourage consumption of low quality products which may resultantly cause harm to the consumer.
    iii. Consumers who are affluent have the capacity to purchase more goods & services.
    iv. In free price system, Production will be employed only when Profit can be earned.
    v. Effects of product and production on society are neglected.

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