Free Market Economy Research Paper Example | Topics and Well Written Essays - 3000 words

Free Market Economy - Research Paper Example In this respect, resources are allocated based on demand of those resources and their supply. More often than not, free markets are closely associated with capitalism with socialists advocating for it. This has made them, on many occasions, to utilized free markets in proposals where the capital allocation of the market is intertwined with self-management within the enterprises alongside the ownership of cooperatives owned by employees. According to Adman Smith, an invisible hand balances supply and demand forces and maintains equilibrium (Smith, 1776, Book IV). Invisible hand refers to the ability of the market to balance itself without government intervention, and which might occur in a free market system of resource allocation. Supply refers to the quantity of product that can be supplied by firms. Demand, on the other hand, refers to the quantity of product demanded by the consumers. Equilibrium occurs for cases where demand and supply curves intersect. This is illustrated in fig 01 below. Fig 01 shows equilibrium position of a demand and supply curve. Source: www.learngoldcoins.com This, if taken from this approach, implies that in a free market, monopolies and cartels cannot exist because monopolies are created mainly by government help and, therefore, are more likely to co-exist in a controlled economy than in a free economy. Monopolies and cartels thrive well when supported by governments. In such cases, the government notably, provide help to large firms in the form of lower tariffs or taxation. A free economy is characterized by tight competitions. For instances, where businesses sprout with maximum profits following the discovery of some thrilling items of demand, other firms often enter into that business driving the profits down. In this case,... There are various advantages attributed to the free market economy. First, free market economy is characterized by free resource allocation with lacking monopolies and cartels. Secondly, the free market system has improved efficiency, as opposed to controlled market system. It is quite apparent that whenever price setting is left to market forces, firms operate efficiently exhausting all their resources to produce at lowest possible prices. Firms in the free market system are often free to enter into any business while consumers access a wide range of products and services. In such a system, no government help or intervention exists. Firms work out a production system that maximizes output and lowers costs. Thirdly, in the free market system, consumers are made to access products and services. In such cases, the existence of demand necessitates the existence of supply. Occasionally, consumers are allowed to get a wide range of products and services. Research shows that when productio n and investment decisions are made by market forces instead of the government, resource allocation is done in a way that that benefits the whole society. Most notable is the fact that in the free market system represents economic freedom for all customers (Friedman & Friedman, 2002, 15). The chart below (chart 02) is the evidence for the worldwide support of the free market system. There are other market systems other than the free market system. They include mixed economy and command economy.