Free Market System – Research Paper

A Free Market System Definition

A free market system refers to a setup where the market economy is based on forces of demand and supply with minimal or no government manipulation. A completely free market would be an idealmarket economy system is where buyers and sellers are allowed to buy, sell and trade freely based on a communal price agreement with minimal or without the intervention of the state, which is usually in form of subsidies taxes, or regulation. In a proper free market economy, individuals own all resources and they make all decisions regarding the allocation of those resources without government’s interference (Hayek, 2008).There are no entirely free market economies, most economies are based on combination of demand and supply forces as well as government intervention forces. Nevertheless, most economies have more attributes of a free market economy than those of a command or government controlled economy(Hayek, 2008).

Attributes of a Free Market System

In a free market system, a manufacturer decides what to manufacture, the quantity to manufacture, the pricing of the produce, and employees’ remuneration. Forces of demand, supply, and competition manipulate these decisions. One of the major characteristics of a free market system is that the government plays a very limited role since buyers and sellers make most of the decisions.

Another characteristic is that in a free market economy, everything is privately owned by either individuals or private enterprises. The government does not own natural resources as well as capital resources. Additionally, produces, goods and services, offered are also privately owned. When this private ownership is merged with individuals’ liberty to negotiate and get into legally binding contracts allows individuals in free market economies obtain and expend resources freely(Hayek, 2008).

A free market need not have existing competition but it necessitates a framework that accommodates new entrants to the market. Consequently, such markets lack strong barriers and they have low entry cost, which in turn foster competition. This creates a competitive market, which encourages efficient use of available resources. These characteristics make a free market economy a self-regulating economy (Scherer & Ross, 1990).

Lastly, free markets promote spontaneous order, which in turn results in improved allocation of resources within the societies they serve. This understanding is founded on the fact that free markets establish multifaceted transactional networks. These multifaceted networks develop as a result of devolved individual lucrative decisions and they foster the production and distribution of goods and services within the economy.

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