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Free Market System Essay

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Question 1 The Free Market System
Free Markets allow prices to be determined purely by the forces of supply and demand. This means that there is no government interference or monopoly price setting. There is voluntary exchange of goods and services between suppliers and consumers and there is decentralization of all business arrangements.
The government doesn’t interfere with the markets with actions like safety legislations, regulation of prices (price floors and price ceilings). If prices are sufficiently flexible, the pressure of excess supply or excess demand will quickly bid process in a free market to their equilibrium level.
Attributes of a free market
The free market systems aims at achieving efficiency, growth and freedom of variety and benefits of increased innovation that’s brought by …show more content…

Producers watch the market system closely and make decisions based on the supply and demand at which point a unique price is determined. This type of market system promotes competition amongst the key players in the economy as prices are mostly regulated by demand and supply because of the competition there is the freedom of entry and exists which enables the economy to adjust to consumer preferences, availability of resources and technological change. In Free market system market forces establish equilibrium prices and exchange quantities.
This creates some sort of conflict between the two players as buyers always want lower prices, while sellers want higher prices. This type of market can lead to market failure in the economy this occur when there is an inefficient allocation of the resources in the economy. Example of this can be climate change, which has caused a lot of environmental damage due to production of some

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