Creative Destruction

Topics: Supply and demand, Free market, Market economy Pages: 3 (1040 words) Published: May 3, 2013
Question 1

Question 2

A free market contrasting with controlled market which government policy intervenes the price setting is a kind of market structure that mainly depends on the supply and demand of the market which on the joins together buyers and sellers of goods, services, resources or factors of production. In another word, free markets come along with less government regulation and more spaces of voluntary (Harcourt 2012). Additionally, the economy settled in the free market is defined as the free market economy. In order to achieve the success, producers and consumers will maximize their own interests and benefit the whole society as if it was controlled by an invisible hand at the same time.

The price of goods in free market is mainly controlled by the supply and demand which reflects the position of the market. More specifically, the association between demand and price are negative, while there is a positive relationship between supply and price. Thus, high demand indicates the low price and high supply claims the high price and vice versa. It is the demand and supply that pull the price and quantity towards equilibrium. Consumer surplus together with producer surplus are the total surplus at the point of competitive market equilibrium. At the same time, the point of equilibrium is where the market demand curve equals to the market supply curves, which tell the story that resources are used efficiently. Also, the quantity of equilibrium represents the efficient quantity. The economy efficiency is the sum of the supplier surplus, demand surplus and the government revenue. The aim of the entrepreneurs is earning more and more profit which increases efficiency. Due to the price can regulate the buying or selling plans and adjust them when plans don not match, in the long run, demand and supply are possible to pull the price and quantity towards equilibrium, and ensure a perfectly competitive market.

The key assumption of the efficient free...
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