Экономические науки/ 6.Маркетинг и менеджмент.

Titarenko Yana

Donetsk National university of economy and trade after Michael Tugan-Baranovsky, Ukraine

Value of free-market economy

A free market is a market that is free of government intervention and regulation, besides the minimal function of maintaining the legal system and protecting property rights, and is also free of private force and fraud. In a free market property rights are voluntarily exchanged at a price arranged solely by the mutual consent of sellers and buyers. The term free market economy primarily means a system where the buyers and sellers are solely responsible for the choices they make. In a way, free market gives the absolute power to prices to determine the allocation and distribution of goods and services. These prices, in turn, are fixed by the forces of supply and demand of a respective commodity. In cases of demand falling short of the supply of a respective commodity, the price will fall as opposed to a price rise when the supply is inadequate to meet the growing demand of a good or service. Free market economy is also characterized by free trade without any “tariffs” or “subsidies” imposed by the government.

The basic feature of the free market economy is that only people with sufficient control over resources, and wealth, in particular have the privilege to purchase goods and services, often priced very highly in a free economy. Prices, which are the only allocating and distributing factor in a free market economy, place the poor in an unenviable situation who are gradually thrown out of the system without any access to wealth and the basic needs of subsistence. Free market economy is considered to the most efficient or optimum device to allocate a country’s resources, with wealth or income being the only yardstick.

In addition, in a free market, force is not used to prevent competition among buyers or among sellers (called free competition). Therefore, force is not a determinant of price, but rather price is the effect of buying and selling decisions en masse as described by the law of supply and demand. Free markets contrast sharply with controlled markets or regulated markets, in which governments directly or indirectly regulate prices or supplies, which according to free market theory causes markets to be less efficient. In the marketplace the price of a good or service helps communicate consumer demand to producers and thus directs the allocation of resources toward consumer, as well as investor, satisfaction. In a free market, price is a result of a plethora of voluntary transactions, rather than political decree as in a controlled market. Through free competition between vendors for the provision of products and services, prices tend to decrease, and quality tends to increase. A free market is not to be confused with a perfect market where individuals have perfect information and there is perfect competition.

In reality there are no totally free or ideal markets in operation. Lack of perfect knowledge, monopolistic practices, cartels, taxes and government regulation bias the equilibrium points of most large markets in existence today. Participants engage in information bias practices such as insider trading and price fixing. Some believe that the notion of a free market is inherently unachievable because they believe that governments are fundamentally involved in markets through the creation and enforcement of property rights. Others argue that the concept of property comes from natural law and therefore it is incorrect to see governments as creating markets.

In the ideal free market, the law of supply and demand predominates, influencing prices toward an equilibrium that balances the demands for the products against the supplies. At these equilibrium prices, the market distributes the products to the purchasers according to each purchaser's use (or utility) for each product and within the relative limits of each buyer's purchasing power.

Free market economics is closely associated with laissez-faire economic philosophy, which advocates approximating this condition in the real world by mostly confining government intervention in economic matters to regulating against force and fraud among market participants. Hence, with government force limited to a defensive role, government itself does not initiate force in the marketplace beyond levying taxes in order to fund the maintenance of the free marketplace. Some free market advocates oppose taxation as well, claiming that the market is better at providing all valuable services of which defense and law are no exception, and that such services can be provided without direct taxation.

Some economists regard the free market as a useful if simplistic model in developing economic policies to attain social goals, others regard the free market as a normative rather than descriptive concept, and claim that policies which deviate from the ideal free market solution are 'wrong' even if they are believed to have some immediate social benefit.

In political economics, one opposite extreme to the free market economy is the command economy, where decisions regarding production, distribution, and pricing are a matter of the state. Other opposites are the gift economy and the subsistence economy. The mixed economy is intermediate between the position of a planned economy and market economy.

In social philosophy, a free market economy is a system for allocating goods within a society: purchasing power mediated by supply and demand within the market determines who gets what and what is produced, rather than the state.

Литература:

1. Science and Engineering Indicators. 2000, National Science Board. -Wash., 2000.-Chapter 7.

2. Marketing [Электронный ресурс]: Режим доступа: http://en.wikipedia.org/wiki/Marketing.