Free Market Economy

Topics: Market, Supply and demand, Free market Pages: 2 (416 words) Published: January 31, 2013
Free Market Economy- DEFINITION

The term free market economy primarily means a system where the buyers and sellers are solely responsible for the choices they make. In a way, free market gives the absolute power to prices to determine the allocation and distribution of goods and services. These prices, in turn, are fixed by the forces of supply and demand of a respective commodity. In cases of demand falling short of the supply of a respective commodity, the price will fall as opposed to a price rise when the supply is inadequate to meet the growing demand of a good or service. Free market economy is also characterized by free trade without any tariffs or subsidies imposed by the government.

Acompletely free market is an idealized form of a market economy where buyers and sells are allowed to transact freely (i.e. buy/sell/trade) based on a mutual agreement on price without state intervention in the form of taxes, subsidies or regulation.In financial markets, free market stocks are securities that are widely traded and whose prices are not affected by availability.In foreign-exchange markets, it is a market where exchange rates are not pegged (bygovernment) and thus rise and fall freely though supply and demand for currency.

In simple terms, a free market is a summary term for an array of exchanges that take place in society. Each exchange is a voluntary agreement between two parties who trade in the form of goods and services. In reality, this is the extent to which a free market exists since there will always be government intervention in the form of taxes, price controls and regulations. Just like supply-side economics, free market is a term used to describe a political or ideological viewpoint on policy and is not a field within Economics.Free market is a very efficient and simplistic model to attain welfare and social goals. Welfare economics is the ultimate source of happiness for both the ruler and the ruled. A welfare marketcan be brought about...
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