What is Free Market?
A free market is a market economy in which the forces of supply and demand are free of intervention by a government, price-setting monopolies, or other authority. Key Concepts of Free Market:
Supply and Demand
In any market, the demand for an item refers to the level of intent to purchase the item. The buyers bid for buying the products and the sellers are given money for the same. This is mainly referred to as the theory of supply and demand. A similar scenario is seen in the case of waged labor. Here the laborer is the supplier who offers their working hours and labor for a price. And the businesses buy their labor depending upon the demand and type of labor required to accomplish a task. In case of increase in demand in comparison to supply, the suppliers increase the price of products (labor costs) and vice versa. The consumers are free to move to different market places depending on the prices offered on a certain product.
According to the general equilibrium theory, depending upon the varying degrees of mathematical rigor over a period of time and under certain specified conditions of competitions, the law of supply and demand is found in the free market that is equally competitive and influences prices towards an equilibrium in order to balance demand. Based on this equilibrium, the market is found to distribute the products amongst the buyers depending on their preferences and within the limit of their purchasing power. The result is referred to as market efficiency or Pareto optimum. This equilibrating behavior found in free market uses assumptions about the agents, referred to as Perfect Competition. Due to this, the results are the same as those, that the market can create. Some of these assumptions are difficult or rather impossible to achieve in the real world, such as lack of market power or complete information.