Answer to Question #248562 in Microeconomics for Asadqazi

Question

In this statement correct that laizze faire purely capitalist economy will consistently give result in economically effective distribution of resources? if yes explain why?

Answer 1

The statement is CORRECT.

When there is effective distribution of resources in the economy, laissez faire capitalism will consistently yield results because it allows the market forces to behave naturally in accordance with the natural laws of demand and supply. The government stays out of the economy entirely, hence there are no taxes, regulations or tariffs. The function of the government in this case is only to protect the rights of the individual.

With no taxation, businesses are guaranteed more power in spending. Startup businesses are given more freedom to take risks. Laissez faire capitalism drives innovation by making businesses to be more creative without regulation. It also creates incentives for entrepreneurs to work harder and to become more productive.