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Free Market Economy - Essay Example

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Free Market Economy

The restrictions include both the ownership and exchange of commodities. In this type of economy, the price of each item or service is agreed upon with the mutual consent of sellers and buyers. The seller is free to offer how much he wants to sell his products or services. Likewise, the buyer is free to bid for the purchase price he wants or needs to buy the product or service he or she craves for. The free market economy is similar to laissez fair economy where the economic condition in the real world is mostly confining government intervention in economic matters as a regulating against force and fraud among market participants. Therefore, with the country's government force limited to a defensive role, government does not ignite the spark in the marketplace. The government, in this scenario has the economic role to levy taxes in order to finance the smooth flow of the free market economy. In the extremely free market economy, its advocates strongly denounce the government's tax intervention.
On the other hand, the opposite to free market economy is a controlled market. In this type of economy, supply and price are set by a government. ...
the free market economy is that the traders and buyers themselves must not force for defraud the other party thereby making the other person unhappy. In short, all trading done are morally voluntary on all parties.

Supply And Demand Theory




Table 1. Demand Curve1

The above table shows that, if the buyer is made to choose, if the purchase price (P1) above was lowered (P2), the demand for the products increases from the original quantity (Q1) to the higher quantity (Q2). This is taken from the St. Charles County Community College Econ 100-80 Survey Economics class.




Table 2. Supply Curve

Supply Curve2 above shows that if the supplier is made to choose, the supplier can increase the quantity he sells when the prices of his goods and services increases.



Table 3. Equilibrium Price.

Table 3 above based on Deardorff's Glossary of International Economics3 , states that the equilibrium price is the price where the demand curve and the supply curve intersect or meet. This equilibrium price is designated by the letter E. This is the price that makes both the seller and the buyer happy.

2. Explain the possible reasons for state intervention in the working of free markets and decribe the manner in which such intervention could take place. (30 marks)

In reality though, there is really no completely free market economy. We have to admit that all governments do interfere with the generally free market to some degree. There will always be government intervention in the form of price controls, taxes and restrictions that prevent new or unwanted competitors from entering the state's free market. In supply-side economics, free market is a technical term that is used to pinpoint to a political or ideological viewpoint on policy which is may ...Show more

Summary

The supplier wants to sell his products as high a price as possible. On the other hand, the buyer wants to buy goods(Parkin, 1998) and services as low priced as possible. The free market economy facilitates the needs of both parties because they are not forced to offer or accept a price against their will…
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