On this page, we will discuss about why is the Market System also referred to as the Free Market system? The content on this page is relevant for Business Studies Grade 9 and Economic and Management Sciences Grade 9 Subjects.
How to define the Market System?
A market system is the network of buyers, sellers and other actors that come together to trade in a given product or service.
The participants in a market system include:
- Direct market players such as producers, buyers, and consumers who drive economic activity in the market
- Suppliers of supporting goods and services such as finance, equipment and business consulting
- Entities that influence the business environment such as regulatory agencies, infrastructure providers and business associations
Why is the Market System also referred to as the Free Market system?
Why is the Market System also referred to as the Free Market system? Well, the Free Market System is guided by the freedom of choice exercised by businesses and consumers which influences the supply of and demand for industrial / consumer goods as required by businesses and/or consumers. The government aims not to interfere in the running of the economy, relying rather on market forces to regulate the economy.
Advantages of free-market economy
- Efficient Allocation of Resources as the free market allows for supply, demand, and prices to all work in tandem.
- Free-market economy encourages business competition.
- Free-market economy encourages business Innovation and economic growth.
- In the free-market economy, there are no many Red Tapes.
Disadvantages of free-market economy
- Profit is always the motive for success in a free market economy.
- Market failures can create severe recessions and ongoing economic consequences.
- A free market economy can provide limited product choices.
- Those who are unable to produce in a free market economy get cast aside.
- A free market economy requires consumption to survive.
- Equality doesn’t always equate to equal opportunities.
- The free market economy alters the priority of governing.
- Free market economies promote the idea of monopolization.
- If large businesses fail in a free market economy, so does everyone else.
- The free market system restrains wages instead of encouraging them to grow.
Characteristics of a Market Economy(free enterprise)
- Private Property.
- Economic Freedom.
- Consumer Sovereignty.
- Competition.
- Profit.
- Voluntary Exchange.
- Limited Government Involvement.
Sources
https://boycewire.com/free-market-definition/
https://www.investopedia.com/terms/m/marketeconomy.asp
https://www.technoserve.org/our-work/what-is-a-market-system/