Free Market Economies

Markets Unlike the Command System, Free & Mixed Systems rely on a system of markets. A place where buyers and sellers of goods and services meet to exchange items Why do they exist? No one is self-sufficient, so everyone must specialize in a skill, job, etc. Markets exist so people can offer and search for other people’s specialization. Specialization causes/increases opportunity cost

II. How Free Markets Work Adam Smith Scottish social philosopher, published Wealth of Nations in 1776 Realized people act out of self-interest and profit. “It is not from the benevolence (generosity) of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.” Peoples’ main motive is the incentive, a form of competition.

Markets are regulated out of self-interest and competition Markets are regulated out of self-interest and competition. When there is no government intervention, the economy is known as laissez faire - “free to do” – and is said to be guided by the “invisible hand.” Invisible Hand You make your own economic decisions based upon your needs & wants. And sellers do the same. The handshake price. The garage sale negotiation. It is a hand on your back guiding you where to go.

III. Advantages of the Free Market Highly efficient No government intervention Most economically free – freedom promotes competition, quality, and innovation Consumer sovereignty: total consumer choice runs economy.

IV. Disadvantages of the Free Market Cannot provide public goods and services. Public Library Why? Too costly or impractical to provide it. Cannot provide security to people that cannot be economically productive Sickness or age Cannot prevent unequal distribution of wealth