UNIT 33 Free Market

A free market is a competitive market where prices are determined by supply and demand. It is primarily found in countries where economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts. Free markets differ from situations encountered in controlled markets or a monopoly, which can introduce price deviations (изменение) without any changes to supply and demand. Advocates of a free market traditionally consider the term to imply that the means of production is under private and not state control or co-operative ownership. This is the contemporary use of the term "free market" by economists and in popular culture; the term has had other uses historically.

A free-market economy is one within which all markets are unregulated by any parties other than market participants. In its purest form, the government plays a neutral role in its administration and legislation of economic activity, neither limiting it (by regulating industries or protecting them from internal/external market pressures) nor actively promoting it (by owning economic interests or offering subsidies to businesses or R&D – research and development).

The theory holds that within an ideal free market, goods and services are voluntarily exchanged at a price arranged solely by the mutual consent of sellers and buyers. By definition, buyers and sellers do not coerce each other, in the sense that they obtain each other's property rights without the use of physical force, threat of physical force, or fraud, nor are they coerced by a third party (such as by government via transfer payments) and they engage in trade simply because they both consent and believe that what they are getting is worth more than or as much as what they give up. Price is the result of buying and selling decisions as described by the theory of supply and demand.

Free markets contrast sharply with controlled markets or regulated markets, in which governments more actively regulate prices and/or supplies, directly or indirectly, which according to free-market theory causes markets to be less efficient. Where substantial state intervention exists, the market is a mixed economy. Where the state or co-operative association of producers directly manages the economy to achieve stated goals, economic planning is said to be in effect; when economic planning entirely substitutes market activity, the economy is a Command economy.

In the marketplace, the price of a good or service helps communicate consumer demand to producers and thus directs the allocation of resources toward satisfaction of consumers as well as investors. In a free market, the system of prices is the result of a vast number of voluntary transactions, rather than of political decrees as in a controlled market. The freer the market, the more truly the prices will reflect consumer habits and demands, and the more valuable the information in these prices are to all players in the economy. Through free competition between vendors for the provision of products and services, prices tend to decrease, and quality tends to increase. A free market is not to be confused with a perfect market where individuals have perfect information and there is perfect competition.