Free Market
Have you heard the term “free market” before and wondered what it meant? A free market is where the law of supply and demand determines the price of a commodity. The origin of the free market can be traced back to medieval Europe, where a liberal approach to obtaining goods and services created a market controlled by buyers and sellers. In the early 19th century, recognition that the free market created favourable trading conditions for both parties was widespread in both Europe and the United States. Today most Western countries operate a free market economy where the basic laws of supply and demand determine the way in which goods and services are valued.
Free markets can exist in a variety of ways. On the internet, E-Bay and other online sites where people meet to exchange goods and services provide examples of free markets. Another example is a community market where people gather to purchase food items. So every time you are buying or selling online or simply purchasing groceries at your local store, you are participating in a free market.
The supply of a commodity in a free market will directly influence the price, as will the demand. For example, a local bakery sells bread rolls under free market conditions. There is a fresh supply each day and a fixed level of demand from regular customers. Consumers know that they have access to a ready supply of bread rolls and that scarcity is not an issue. The price may also be influenced by the bakery's competitors nearby who provide the same bread rolls. Based on where supply and demand meet, the equilibrium price of the bread roll is fixed by both seller and buyer. In this way, the free market price is established.
An example of when a market is not free is the pharmaceuticals industry. This is subject to strict control by government and other regulating bodies. The supply and sale of prescription drugs can only be carried out by registered manufacturers and pharmacists in order to protect the well-being of the public. In this example, market conditions are influenced by the government rather than by buyer and seller.
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Banking - Business Finances - Economics - Insurance - Investing
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