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What is a Free Market Economy - Assignment Example

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This assignment "What is a Free Market Economy? " discusses the meaning of the term 'free market economy'. The assignment explains the possible reasons for state intervention in the working of free markets and describes the manner in which such intervention could take place…
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What is a Free Market Economy
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Download file to see previous pages A free market economy is a type of economy(Slavin, 1989) in which the resources are allocated based on the basic economic law of supply and the demand for them. But the reality, this is mainly a theoretical concept because we all know that in every country, including capitalist ones, there are import restrictions or quotas established to protect the countries’ local competitors. 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, the 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 of the free market economy is a controlled market. In this type of economy, supply and price are set by a government. Clearly though, even a free market economy the players prefer that government does not dictate both the selling prices as well as the purchase prices. One general rule in the free market economy is that the traders and buyers themselves must not force for defrauding the other party thereby making the other person unhappy. In short, all trading done are morally voluntary on all parties.
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.
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.
In reality, though, there is really no completely free market economy. We have to admit that all governments to 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, a free market is a technical term that is used to pinpoint to a political or ideological viewpoint on the policy which is may be outside the boundaries of economics. ...Download file to see next pagesRead More
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