How do firms contribute to the efficiency of the market economy in ways that networks of independent contractors do not? Use one a  firm that you are familiar with to illustrate your response.

Firms generally contribute much more to the efficiency of the market economy because their composition provides them with resources and power that independent contractors typically lack.

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Firms generally contribute to the efficiency of the market economy in a much more concrete way than independent contractors. The stability and power that is often associated with a firm usually means that it will have a greater impact on the efficiency of the market economy than any network of independent contractors.

For example, think about the ride-hailing firm Uber. Uber offers many services. Its most notable service is most likely ride-hailing. Through its app, a person can have a car come pick them up and take them to wherever it is they want to go.

As a large firm, Uber has the ability to offer services and prices that independent contractors can’t. Its size gives them a forceful role in the market economy—not just in the ride-hailing sector, but in the overall market economy. At one point, a couple of years ago in 2019, Uber was valued at over 76 billion dollars.

Conversely, the value and centrality of firms like Uber can contribute to inefficiency in the market economy. If firms like Uber turn out to be overvalued or underperform, they can destabilize and disrupt the market economy, which can cause people to lose their money and/or their jobs.

Of course, Uber needs people to drive their cars. Uber labels these people "independent contractors." Uber’s independent contractors, according to 2018 data, earn a little less than $10 per hour. One can conclude that Uber's network of independent contractors lack the financial capital to have a major impact on the efficiency of the market economy. However, if Uber drivers banded together and, say, went on strike in order to try and procure higher wages, then that would probably have serious consequences for Uber and its efficiency in the market economy.

Last Updated by eNotes Editorial on
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