A free market is an economic system where the prices of goods and services are determined by unrestricted competition between privately owned businesses.

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A free market is an economic system where the prices of goods and services are determined by unrestricted competition between privately owned businesses. Scarce resources are allocated through the price mechanism where consumer demand and preference and the supply decisions of businesses come together to determine equilibrium prices. The limitations of a free market are set by the business cycle and include: Failure to provide public and merit goods, inequality of income, negative externalities, monopoly power abuse and fluctuations in economic activity. All these limitations contribute to market failure.

Public goods cannot be provided in a free market economy because these goods have to provide publicly, and have to be non-excludable. An example of a public good would be a park, where a business would not be able to charge a usage fee to those who use it, as it is non-excludable. A privately owned business firm would not be benefitted by providing public goods, as they would not receive sufficient funding to continuously provide public goods. There is also a problem with merit goods like healthcare and education, which tend to be under provided in a free market. Unlike public goods, merit goods are excludable. With merit