The paper 'The Role of Government in a Free Market Economy" is a good example of macro and microeconomics coursework. Apparently there cannot be a true free-market economy. Such respected economists as Adam Smith argued that a free market economy is a hypothetical system that cannot exist in the real world. While economists explain the concept of free-market as a hypothetical framework, it can be described as the fairest of them all. The free market system is the foundation of capitalism. Apparently, the essence of the free market is that the forces of demand and supply control the market conditions including the price at which goods and services trade for (Wessels, 2006).
Unlike other forms of market, the government has a limited role to play in a free market. Worth noting is the actuality that in the real world, the government cannot be totally sidelined from the business. This, in simple terms, explains why there cannot be a completely free-market economy. The role of the government in a free market economy is minimal yet quite significant. The government, according to economists is the setter of the trading environment.
This paper endeavors to explicate the role of government in a free market economy and why there cannot be an absolutely free market. Characteristics of a free market Perhaps one of the most pronounced features of a free market economy is the fact that the government is a minor player. Additionally, the government is somewhat a moderator in the economy, but not a determinant of the direction of the economy. Since the market is a minor player, the market conditions including the price are determined by the interplay of demand and supply.
The essence f a free market is self-interest and capitalism (Ubel, 2009). The other feature of a free market is the actuality that the private sector controls almost all the land and other resources as well as the means of production. Similarly, the self-interests create some form of competition since each individual stakeholder wants to be the best player. A free market is characterized by many buyers and many sellers, unlike a monopoly where the seller is one and the buyers are many. Similarly, in a free market, there is no single large buyer that determines the terms of transacting.
All buyers and sellers have an equal chance. Homogeneity is another primary feature of a free market. By homogeneity, it means that the buyers and sellers are almost identical in the sense that none of them is too significant as to determine the prices. All buyers and sellers compete for the identical units offered by the market. Worth noting is the actuality that in the case of a free market, there is the ease of entry and exit.
New firms can easily enter the market as there are not so many barriers to the process. On the same note, existing firms can easily exit as there aren’ t barriers to the same. Demand and supply interact to determine the prices. Depending on which one supersedes the other, demand and supply interplay causes price changes (Taylor, 2008). Another significant feature of the free market s the point that the buyers and sellers enjoy what is referred to as stakeholder sovereignty. Sovereignty means that the stakeholders’ actions and decisions are not influenced by so many forces.
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