What Is A Free Market?

Free Market

A free market can be defined as a market where buyers and sellers are the deciding factors who eventually run the market. As buyers and sellers take control, the elements of supply and demand play a significant role in pushing the market forward. Governments usually do not have a say in this market as they might be unaffected by their policies and regulations. So to completely understand what a free market is, let us discuss its main characteristics.

Supply

Any individual can enter a free market and begin a venture of their choice. This individual is also held accountable for bringing in supplies and providing services for the market. Hence this gives them power over their products without being responsible to anyone.

Demand

Demand

The concept of demand holds ground in a free market like any other market. Here customers again have the liberty in choosing their products, thereby creating a sense of competition between firms operating in a free market. Competition can be useful and at times, can also be harmful. The beneficial factors are that it enhances productivity and quality, but the adverse elements are that it can eventually make a firm run out of business. In a free market where few firms operate, this may seem to be a huge problem.

Lack of Protection

One of the main reasons why free markets tend to go underground is that their goods and services do not seek regulation under any circumstances, which is also one of the reasons why these resources tend to be depleted from time to time. This can possess a massive risk for the survival of these markets and also is an incentive for these markets to begin dealing with illegal goods and services.

Production

The factors and the level of production in a free market are different and varied when compared to all the other markets. Here it is the forces of supply and demand which decide the levels of output for a product. Hence if the need arises, then there will be production.

The Role of Financial Institutions

 
The survival of the free market at times depends upon the types of funds available at their disposal. Since business organizations require capital to commence and function, so do firms in a free market economy. Hence they tend to borrow this financial resource from institutions that provide them. This also further benefits these institutions as they move further based on the rates of interest.

Scope for Entrepreneurship

Since individuals have the power to decide and control the market, they have a scope for being budding entrepreneurs. These entrepreneurs go through a set of risks and measurements in their business, modeling them into capable individuals.