Notes

What Is a Free Market Economy?

A free market economy is an economic system in which the prices of goods and services are determined by supply and demand expressed by sellers and buyers. Such markets, as modeled, operate without the intervention of government or any other external authority. A free market economy is based on voluntary exchanges that take place in a given economic environment. A key feature of free markets is the absence of coerced or forced transactions or conditions on transactions. A free market economy may range from very large or entirely illegal, depending on the political and legal rules of a country. A free market economy is often associated with private property, capitalism, and individual rights, as these factors provide incentives for profit-seeking and innovation. However, a free market economy may also include common ownership of the means of production, as long as there is no coercion involved. A free market economy is considered to be Pareto-efficient, meaning that no one can be made better off without making someone else worse off, under certain conditions. However, a free market economy may also face some challenges, such as environmental costs, market power, transaction costs, and distributive justice. Some economists and ethicists argue that these challenges require some form of government regulation or intervention to correct market failures and ensure fairness.