an unregulated system of economic exchange, in which taxes, quality controls, quotas, tariffs, and other forms of centralized economic interventions by government either do not exist or are minimal. As the free market represents a benchmark that does not actually exist, modern societies can only approach or approximate this ideal of efficient resource allocation and can be described along a spectrum ranging from low to high amounts of regulation.
- Supply and Demand.
relationship between the quantity of a commodity that producers wish to sell at various prices and the quantity that consumers wish to buy. It is the main model of price determination used in economic theory. The price of a commodity is determined by the interaction of supply and demand in a market. The resulting price is referred to as the equilibrium price and represents an agreement between producers and consumers of the good. In equilibrium the quantity of a good supplied by producers equals the quantity demanded by consumers.
- Market Failure.
The failure of a market to deliver an optimal result. In particular, the economic theory of market failure seeks to account for inefficient outcomes in markets that otherwise conform to the assumptions about markets held by neoclassical economics (i.e., markets that feature perfect competition, symmetrical information, and completeness). When failure happens, less welfare is created than could be created given the available resources. The social task then becomes to correct the failure.
- - Public Goods
- - Externalities
- - Asymmetrical Information
- - Monopolies
- The U.S. Constitution and the Free Market:
- assure that the ground rules were fair (a fixed standard of weights and measures)
- encourage initiative and inventiveness (copyright and patent protection laws)
- provide a system of sound currency with an established value (gold and silver coin)
- enforce free trade (free from interfering special interests)
- protect individuals from the harmful acts of others
- what else?
- The first congress.
- The evolution of executive agencies
Criticisms
Social Costs
- Rules biased in favor of suppliers
- The welfare of laborers
