Free Markets and Inequality

Steps:

• Define free market: System where prices, production, and distribution are determined by supply and demand with minimal government intervention.
• Identify advantages: Promotes efficiency, innovation, and incentives through competition and profit motives.
• Identify disadvantages: Can lead to market failures like inequality, externalities, and instability without regulation.
• Match to options: Evaluate which describes a drawback, focusing on social impacts.

Why D is correct:

• Free markets allocate resources based on ability to pay, widening income gaps as wealth concentrates among successful producers and consumers, per economic theory of unequal bargaining power.

Why the others are wrong:

• A: Free markets boost work incentives via profit opportunities and competition.
• B: Free markets often raise pollution as firms externalize environmental costs for profit.
• C: Increased efficiency is a core advantage, optimizing resource use through competition.

Final answer: D