What is a Free Market? Market conditions provide freedom for people to buy and sell goods, whose selling and buying prices are determined by supply and demand (free market).
A free market is an ideal market, in which all economic decisions and actions by individuals relating to money, goods, and services are voluntary. The free market is advocated by the proponents of economic liberalism.
What is a Free Market?
A free market is a market where buyers and sellers have the freedom to decide their trade and business issues. All forms of policy do not have standards or coercion from other parties or the government.
Free Market Features
- Ownership of free production tools and resources is owned by all parties
- There is a class division in the economy of society
- There is competition to get the maximum profit
- Intervention from the government is limited
Advantages and Disadvantages of the Free Market
Advantages of Free Market
- Everyone is free to own wealth and productive resources
- Society can develop creativity and innovation
- Competition between producers creates high motivation to create quality products
- The activities carried out are based on economic principles so that they are efficient and effective.
Disadvantages of the Free Market
- There is the exploitation of economically weak communities by rulers who have strong economies.
- The occurrence of a monopoly can lead to losses to the community
- The important economic gap between strong and weak economic groups
- The economy tends to be unstable, causing problems in the market.
Free Market Destination
The free market has the following objectives:
- Increasing state income, and trade that occurs not only domestically such as export activities will undoubtedly provide greater opportunities for a country to expand its market.
- To improve the country’s economy, free trade is one way to increase the production of domestic goods and introduce and sell them in the international market.
- Expanding the market, not only expanding information about domestic products, but free markets and free trade that are open to various countries can also increase the number of consumers of these products. There is a product that may sell better in other countries than in the country itself.
- Meeting domestic needs, the existence of a free market allows people to meet the needs of a product that may not be obtained domestically through import activities.
Free markets can open up the transfer of technology by expanding opportunities for the transfer of technology. Through the free market, developing countries can experience and take advantage of technology from developed countries that are already more sophisticated.
Free Market Function
- Giving freedom to the community to carry out economic activities, especially imports and exports
- The access to information related to the price and quantity demanded of goods to maintain the cost of goods to remain stable.
- For companies, the free market can be used to earn additional income from the business being run and the opportunity to learn more modern skills.
- Free markets and free trade also serve to increase the use or consumption of goods and the efficiency of producing these goods.
Free Market Benefits
Through the free market, the country’s economy will certainly grow and develop because of the freedom for everyone to able to manage their production resources to obtain wealth. This, of course, will also increase the creativity of the community and producers to produce quality products to compete in the international market. Free markets create much tougher competition among firms. Free markets are also considered effective and efficient for entrepreneurs because the actions they take are based on their respective economic principles.
Free Market Example
The following are some examples of the application of the free market system in international trade, namely:
- NAFTA (North American Free Trade Area), is a free trade system in North America that was founded in 1994 and includes the United States, Mexico, and Canada. This organization’s activities are obtaining visas and passports, managing commercial activities, and communicating about cultural activities.
- APEC (Asia Pacific Economic), is economic cooperation between 21 countries in the Pacific region that aims to build close relations between countries while increasing economic growth, as well as encouraging the expansion of free trade in the Asia Pacific region.
- The EU (European Union), or the European Union, is a free market agreement between 28 countries in the European region. This EU aims to facilitate the entry and exit of goods from each member country to improve the economy of these countries.
- MEA (Asian Economic Community), is a free market in Southeast Asia with its member countries from ASEAN. The MEA free market allows the process of selling goods and services between its members without being subject to tariffs.
- CAFTA (China – ASEAN Free Trade Area), as the name implies, this free market is a trade agreement between China and countries in ASEAN. This organization regulates cooperation between its members so that they can carry out duty-free trade activities for products that enter China and ASEAN.
Problems in the Free Market
The implementation of the free market, of course, often faces many obstacles and is generally related to the threat of implicit and explicit power. Some examples of problems are tax constraints, specific exchange restrictions, trade regulations, price controls, licensing requirements, fixed exchange rates, mandates regarding exchange requirements, production quotas, competition for public services, to the process of recruiting employees or labor.