The free market is quite popular, especially in developed nations. It is thought to give people leeway to take part in the economy. How does a free market actually work? What’s so good about it?
What is the free market?
The free market is a “system in which the prices for goods and services are self-regulated by buyers and sellers negotiating in an open market. In a free market, supply and demand work free from government intervention or other authority. It free from all forms of economic privilege, monopolies and artificial scarcities” [Source]. It is an economic system with unrestricted competition. Privately owned businesses can determine their own prices.
Can a free market create monopolies?
An economic monopoly occurs when an organization or company dominate a market to an extent of exerting control over it. “Under a free market (a system free of government regulations), there would be no true way to establish a monopoly as outlined before. When there is free competition, no single seller will have exclusive control over a specific industry” [Source].
In a free market, service providers can attract customers using various means. A company can only dominate the market due to the popularity of its name, but monopolies are rare.
Difference between free market and free trade
Free trade is a “market mechanism in which goods/services and other factors of production can be traded without barriers.” [Source]
In a free market, prices are determined by competition between privately-owned companies. A free market is about providing services and free trade is about trading. Free trade extends to countries doing business together while the free market can be limited to a nation’s economy.
This also means that free trade is international whereas a free market is a domestic system. Free markets reduce the external influence on prices. Free trade cuts trade barriers such as tariffs, quotas, taxes, embargos, among others.
Are free markets better than regulated markets?
Free markets are better than regulated markets controlled by governments. Governments tend to underperform in many sectors. The government may influence companies to lower prices. This cannot pay for reimbursement or renovations. Free markets have high prices useful in purchasing the best products and delivering top-class services.
Steven Taylor James argued that free markets created more prosperity than any other system [Source].
Can you have a free market in socialism?
Socialism opposes private owners controlling the economy. It pins all hopes on a state-controlled government. Under socialism, prices are determined by the government. This philosophy propagates for a regulated market. In the modern world, hybrid systems such as liberal socialism, progressivism, and free markets.
Theoretically, a free market cannot exist in socialism. A free market can exist under socialism “as long as there is an absence of coerced (forced) transactions or conditions on transactions or in other sorts of communal/mutualistic societies.” [Source]. The shared view is that for free markets and socialism to exist, there must be free will and must be voluntary for people to choose what they want [Source].
Difference between free market and free enterprise
Free enterprise allows “anyone to start a business without the permission of the government. They can compete against other businesses without interference from the government.” [Source], The free market is a system in which prices for goods and services are self-regulated by buyers and sellers. Free enterprise is more inclined to entrepreneurship opportunities without bureaucratic processes. The free market is mainly on a zero government intervention on prices and there is competition by private owners of businesses.
Does the free market overproduce or underproduce?
Goods that generate positive externalities are under-produced in a free market. They are undervalued by both consumers and firms.” [Source] These goods have a bigger market because negative externalities are also despised by governments and rights groups.
How are free market economies able to attain economic growth?
Free markets rely on competition, and competition “encourages innovation which causes growth. [Source]. Private business owners chase huge amounts of profits. These funds are injected back into the business, thus growing it increasing the capital and expanding. Prices by private owners tend to be high, so there is enough money to venture into other businesses and buy or produce more products. The free market offers a variety of goods as producers have incentives aimed at satisfying the needs of customers.
Are the free market and capitalism the same?
A free market and capitalism are not the same, but a free market is a characteristic of a capitalistic system. It also exhibits features of capitalism such as promoting private ownership of property. There is Zero government intervention into major economic processes. Buyers and sellers regulate their own market without the government dictating terms. Also, a free market can function under socialism as discussed earlier on, so it cannot be the same as capitalism.
Can free market healthcare work?
The free market healthcare system is always a debated issue among various scholars and human rights activists. Government controlled healthcare systems such as NHS are applauded for being affordable. The masses prioritise taking care of ordinary citizens.
Many people are afraid of free market healthcare. Private players prioritise profits over well-being. The private sector flourishes as compared to government influenced healthcare departments. This means that free market healthcare can work. It has a well-oiled system with all products, but will be a disadvantage to the large population of low-income earners.
How are wages determined in a free market?
Wages in a free market are determined by the intersection of supply and demand [Source]. In a free market, “Companies sell goods and services at the highest price consumers are willing to pay. Workers earn the highest wages companies are willing to pay for their services” [Source]. Few workers usually get high wages as compared to having a lot of workers at a company.
Is the free market good for competition?
The free market is said to ensure competitive markets. This is because “Consumers’ voices are heard in that their decisions determine what products or services are in demand. Supply and demand create competition which helps provide products and services at a lower price” [Source]. Also, companies have to fight each other by offering the best services to get more customers.
Is the free market liberal or conservative?
A free market economy is also called a liberal market economy [Source], which then suggest that a free market is liberal. It possesses conservative ideologies such as opposing government intervention. “to promote social and economic equality, arguing that the free market will reward individuals according to their talent and hard work.” [Source].
In a free market, prices for goods and services are set free, and due to competition. There is an ever-lasting room for innovation and drastic changes, which makes a free-market liberal.