Regulation under the free market economy essay

In a market socialist economy, firms operate according to the rules of supply and demand and operate to maximize profit; the principal difference between market socialism and capitalism being that the profits accrue to society as a whole as opposed to private owners. Profits derived from publicly owned enterprises can variously be used to reinvest in further production, to directly finance government and social services, or be distributed to the public at large through a social dividend or basic income system. In this model of socialism, firms would be state-owned and managed by their employees, and the profits would be disbursed among the population in a social dividend. This model came to be referred to as "market socialism" because it involved the use of money, a price systemand simulated capital markets; all of which were absent from traditional of non-market socialism.

Regulation under the free market economy essay

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The term Accounting Regulation is the application of rules to financial reports of companies and other entities which require them to prepare those reports in ways other than might be chosen freely.

In other words accounting regulation are rules that have been developed by an independent authoritative body that has been given the power to govern how companies and entities are to prepare financial statements. However the regulation would be expected to incorporate a basis for monitoring and enforcing compliance with the specific regulatory requirements.

In considering accounting regulations, this essay will examine the arguments for eliminating the accounting regulation under the free market perspective.

According to accounting regulation, a fundamental assumption underlying the free market perspective is that accounting information should be treated like other goods, and demand and supply forces should be allowed to freely operate to generate an optimal supply of information about an entity.

There are four main arguments that have been used to support this perspective. According to Smith and wattseven in the absence of regulation, there are private economics-based incentives for the organisation to provide credible information about its operations and performance to certain parties the organisation to avoid higher cost.

Furthermore, it is assumed that potential external shareholders expects to have opportunistic behaviour and in the absence of safeguards will reduce the amount they will pay the shares. The pessimistic assumption that all parties are working for the self-interest unless constrained to do otherwise, will have the effects of increasing the operating cost of the organisation — the cost attracting capital will have negative implications for the organisation.

These contracts are often based on the accounting information.

Regulation under the free market economy | Essay Example

According to proponents of this view, Organisations that do not produce information will be penalised by higher cost associated with attracting capital and this will damage the interest of those managers who own shares in their organisation. Furthermore, it is argued that organisation will be best placed to determine what information should be produced to increase the confidence of external stakeholders depending upon the parties involved and the type of asset in place.

Imposing regulation that restricts the available set of accounting methods will decrease the efficiency with which negotiated contracts will reduce agency cost. It is also assumed that auditing will take place in absence of regulation which reduces risk to external stakeholders.

This assumption was further explained that in the absence of regulation, assumed managers are encouraged to adopt strategies to maximise value of firm to provide a favourable view of its own performance and this includes providing optimal amount of accounting information.

However this argument assumes that managerial labour market operates efficiently and the information about past managerial performance will not only be known by potential employers but will also be fully impounded in future salaries.

Furthermore, it also assumes that the capital market is efficient when determining the value of the organisation and the effective managerial strategies that will reflect positive share price movements.

This argument works on the assumption that under-performing organisation will be taken over by another entity that will subsequently replace the existing management team.

What's the Difference Between a Market Economy and a Command Economy? | Investopedia

Therefore, management provides information to minimise cost of capital thereby increasing the value of the firm. This argument further assumes that management will know the marginal cost and befits involved in providing information and in accordance with economic theories about the production to other goods, management will provide information to the point where marginal cost equals marginal benefit.

There is also a perspective that even in the absence of accounting regulation; organisations would still be motivated to disclose both good and bad news about the financial position and the performance of the firm.

Therefore, even though the organisation may be worried about disclosing bad news, the market may make an assessment that silence implies that the organisation has bad informant to disclose.

Therefore managers disclose both bad and good news about the financial statements voluntarily Skinner, The arguments that the market will penalise organisations for the failure to disclose information assumes that the managers has particular information to disclose.

Although this may not be a realistic assumption as it has been seen with many apparently unforeseen accounting failures such as Lehman Brothers and Enron.

Command Economy - Central Direction

More essays like this:the four main argument against regulation under the free market economy. Topics: Economics, The two systems selected for this particular essay are the free market and the command market. Free Market (The United States of America).

What Does it Mean to be a Capitalist Economy – Political Science Essay Capitalism is defined as an economic system in which the means of production are mostly privately owned, and capital is invested in the production, distribution, and other trade of goods and services, for profit in a competitive free market.

Free markets and government intervention.

Austrian School

There is no free market in finance, there never was, and there never will be, at least in the sense that these people think. it is also one of the most heavily regulated sectors of the economy.

There is no market out there which is not underpinned in one way or another by government regulations. Learn how capitalism and free market systems work, along with their differences.

however some government regulation may occur.

Market Economy - The "Free Enterprise System" Therefore I am a fierce proponent of government intervention in the market.
How is a Capitalist System Different Than a Free Market System? | Investopedia Student Answers krishna-agrawala Student In reality there are no perfect free market economies. Even in countries like USA considered to be champions of free market, there are many areas of government control.
Quick Answer By Chris Seabury Updated August 7, — In a true free market, buyers and sellers conduct their business without any government regulation, but there is a continuing debate among politicians and economists about how much government regulation is necessary in the U.
Significance Disadvantages of a Free Market Economy Having a free market economy means that certain essential goods and services that we have come to expect from our governments are not provided or left up to the good will of private enterprise to provide them on some level, if they choose. As we have seen in very the recent economic picture of the world, these days, corporations always choose profits making and company benefits over aiding the people.

it leads to free competition in the economy, without any. A type of economic system practiced by most countries, including the United States, is the market economy.

Regulation under the free market economy essay

This is a system wherein the market is run by the law of supply and demand. Here, the government or a central authority does not dictate what products are to be sold in the market, unlike the command economy. Free government regulation papers, essays, and research papers.

My Account. Your search returned over Economics Microsoft Essay] Strong Essays words | ( pages) | Preview. Impact of Excessive Government Regulation which has gradually evolved the US into a mixed market economy from the pure free market capitalists .

Free markets and government intervention | Economics | The American Scene