My Views on the Free Market System - Essay Example

Position Paper of My Views on the Free Market System Contents Position Paper of My Views on the Free Market System Contents 2 Introduction 3 Free Market System 3 Impact of Free Market on Poor People 4 Conclusion 5 Reference 7 Introduction Free market is the system, where the price of the goods or services depends on the supply and demand. When there was no free market system in the market, then the foreign investors have no entry in the market of a country. The price of the good and service decided by the local government only. In the process, there existed some problems, as the manufactures were not able to fix the prices as per the regulation of the controller. There profit may get lower as the prices of the goods or services depend on various factors like the prices of the raw materials and the cost of labours etc. The competition was limited as there was no gate of entry for the new players. The company may have the monopoly market or oligopoly market means there are only one manufacturer or limited manufacturer, who can affect the decision of pricing by the controller. The common people could affect by the pricing of the goods, as they have not many other options. May be the price of the commodities were beyond the reach of the common people. On the other hand, in a free market, the number of competitor increases and the pricing of the goods do not depend on the controllers’ decision; rather it depends on the manufacturers of the market. Free Market System The economy, which is based on the supply and demand of the market, which is not controlled by the government or controlled a little, is called the free market. In a free market economy, the buyers and the sellers are free to do the transaction freely and the pricing is decided by a mutual agreement of the two parties, without the intervention of any third party. In the free market economy, the foreign investors can invest in the domestic companies as well as they can open the branches in the country. As the numbers of competitor increases, the companies will try to provide product in a lower price than its competitors and adding more value in the product. The management of the companies would try to decrease the operating cost and increase the quality of the product. On the other side, the common people get the same basic product in a lower price and of better quality (Sanders, 1977, pp.37-38). People have the option to choose the goods or service provider from a group. In a free market the price of the goods or services depend on the demand and supply system. Therefore, when the price of a commodity increases, then the economists implicate that either the supply of that particular commodity decreased or the demand of that good or service increases. The price of a good or service increases if the price of the raw materials or the labour charges increases. On the other hand, the demand of a product increases depending on the habits of the customers. If the supply of a product is down, but the price is not so high, then it can be implicate that the demand of the product is also down. So from the price of a product in a free market the buying behaviour of the customers can understand. In a market, which is regulated by the local government, the scope of entry for the new organization is difficult. However, in a free market, the entry barriers are limited. If the new player can offer the product in a lower price than its competitors offer and offer better quality product, then they can get a good position in the market. At present, the government in many countries has created some special economic zones, where the domestic companies as well as the foreign companies can open their branch and do the business. The companies get special tax benefits for operating in the zones. The domestic countries get the product easily, as well as the employment problems can mitigate. The domestic companies also get the opportunity to operate in the special economic zone, when they are agreeing to export a certain percentage of their products and as a result, the country gets foreign currency, which is favourable for their economy (Government of India, 2006, pp. 22-28). Although the free market system exists in all the countries of this world, there are also criticisms of the system. A research conducted by a professional organization shows that in the United States, which is the strongest economy of the world, 23% of all the people doesn’t believe that the free market system is good for the future of the economy. In the country like turkey, South Korea, a major percentage of people do not believe on this system. It has also found from the report that people mainly support the free economy, when the government take interest in the system (Globscan, 2008, pp. 4-5). Impact of Free Market on Poor People When the market of a country is not free, means that the government, then that control the price of the goods and services may affect the poor people, depending on how it is regulated. If the government has the control on the price, i.e. they fix a certain price, then the poor people of a country can plan accordingly that and the goods or services are available to them. If the government regulates and control the entries of new entrants, then certain manufacturers control the market. The market becomes a monopoly market or that can be oligopoly. If the market becomes an oligopoly one, then the people do not have much option to get the goods or services. In an oligopoly market, the people can get the services on a high price, when a free market is there, the prices of the goods or services can be lower as there are many competitors in the market as well as the quality of the products can be better (John Templeton Foundation, 2008, pp.12-20). There are also positive and negative points in a free market. In a free market, the government does not regulate the prices of the products and they do not control the market. The prices are decided on the supply and demand of the product. The prices of a product can be out of reach of the poor people, as it is not regulated but may be the item is of daily use of the people. There are also positive points of the free market concept. In the free market as the number of the competitors is more, the people can get quality product and those are of in less price. The developing countries have started many special economic zones, where the companies special benefits. The countries also get benefits as the people get the chance of employment there. It can be concluded that the for the free market system the poor people are getting better opportunities of job, which can improve their condition for the long-term as well as the short-term period. The free market concept can bring foreign capital in the country and the domestic companies, which run in short of capital, can get the needed capital for their operations, as well as they can get better labours as this free market makes the country as a part of globalization. In a globalized world, the company can get better labours from some another country which would help them to increase the profit. The companies are the components of the country, which in turn help the economy to become better. As the economy of the country become well, the poor people get benefit from that action. The examples also support the fact. In the year 1991-92, the government of India declares the country as a free economy, because of that; the country is now a developing country where the GDP growth is also increasing constantly (Jain and Verma, 2009, pp. 758-761). Conclusion The market is the decider of price in a free market and the price of the products depend on the demand and supply. In a market, which is not free, the price of the goods and services depend on the decision of the controller. The government also used to decide about the policies of the companies and the number of the companies in the country. However, in a free market the barrier of entry in a certain industry is limited, so the number of competitors is higher. The increased number of competitors in the industry assures the lower price of the goods and services as well as better quality of the product. The effect of the free market depends on the government of that country. The government has to control a little the free market for the poor people of the country. In some cases, it can be happen that the price of the goods or services are higher, which is beyond the reach of the common people. Therefore, the government has to control the market, so that it is not fully depend on the demand and supply economics. At present, the government collect the taxes, which is used for developing the infrastructures of the country as well as for providing some relief to the poor people of the country by providing subsidy. Reference Globscan. (2008). Erosion of Support for Free Market System: Global Poll. Retrieved on- March 22, 2012 from < http://www.worldpublicopinion.org/pipa/pdf/apr08/Free_Markets_April08_pr.pdf>. Government of India. (2006). SEZ Rules. Retrieved on- March 22, 2012 from < http://www.sezindia.nic.in/writereaddata/rules/SEZRulesincorporatingallamendments.pdf>. Jain, M., and Verma, A. (2009). LIBERALISATION PRIVATISATIONAND GLOBALISATION MODEL. Retrieved on- March 22, 2012 from < http://www.ssmrae.com/admin/images/4444ead379edeac18d62438123a155bd.pdf>. John Templeton Foundation. (2008). Does the Free Market Corrode Moral Character. Retrieved on- March 22, 2012 from < http://www.templeton.org/market/PDF/BQ%20Market%20Essays.pdf>. Sanders, J. (1977). The Free Market Model Versus Government: A Reply to Nozick. Retrieved on: March 22, 2012 from < http://mises.org/journals/jls/1_1/1_1_5.pdf>. Read More