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 goods such as healthcare, only those with sufficient income would be able to access the service and those who have insufficient income would not be able to access the good/service. This leads on to the next limitation of a free market, unequal distribution of income.
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In a free market economy, there is large unequal distribution of income because the income of most labourers is driven down by the high level of competition in the market. Those whose businesses are profitable and not forced down by competition are those with great wealth. This creates inequality of the distribution of income in the economy. In a free market with a limited government, the health service will be poor and education will be underfunded. Those who cannot afford a good education will not be able increase their potential, and thus will obtain a job not of ...

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**** This essay is strong on market failure but not so strong at describing how the market actually works. I would like to have seen more on this at the start.