Competitive markets, free from government intervention are the best means of allocating society(TM)s scarce resources amongst its members.

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Competitive markets, free from government intervention are the best means of allocating society’s scarce resources amongst its members.

While economists theorise about markets free from government intervention, regulated markets, though generally less efficient, are also functionally viable. It is through the analysis of both types of markets, and their relative applications within society, that economists can critically evaluate their effect upon the allocation of society’s resources amongst its members.

A competitive market is an economic forum run by supply and demand, where “price is a result of voluntary transactions”. A market free from government intervention is known as a free market, and under ‘perfect conditions’ is theorised to be the most efficient. However, it is only through the introduction of regulation, that these markets can be seen as more equitable to members of society. While perfectly competitive markets, in the long run, achieve economic efficiency, in reality, government intervention provides a legal framework to enforce contracts, monopolies, and political, economic, and environmental conflicts. Perfect competition provides a framework to achieve the desired outcome of workable competition, through effective regulation.

A market economy free from government intervention is theoretically preferred in many ways, however there are some aspects of its functionality that render it inappropriate within a practical society. While unregulated competitive markets are “a more efficient allocation of societal resources that any design could achieve”, they have the tendency to inequitably distribute resources. Competition within the free markets ensures that some parties are excluded. They are unable to participate with the en-mass buying and selling of goods that determines price within the market, according to the laws of supply and demand. Within free markets, unlike regulated markets, external force is not a determinant of price, nor is it used to prevent competition. Free competition between vendors facilitates price decreases and encourages the increase of the quality of a product or service. This is beneficial to members of society as a higher quality good at a lower price encourages competition. Furthermore it contributes to civil and political economical freedom by ensuring that the customer’s are heard as their discussions determine what product or service is in demand. In a free, self-perpetuating market, if there is a need for a good there is always a supplier to provide that good, given the availability of resources. A free market has a much lower cost of business attached to it, as there are no regulations imposed by the government.

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Government intervention of free markets through the introduction of tariffs, quotas and taxes, aims to increase the equity amongst trading parties. Introduction of regulations are necessary to protect consumers, as large corporations are generally not looking out for the public’s interest. Furthermore, through regulating rates within monopoly environments, government intervention stabilises the economy. Through this stabilisation of price, regulation gives the domestic producer a chance to compete with foreign goods. Regulation implemented by bureaucracy, however, can squash innovation and stifle growth. If a government heavily regulates the private sector, it too can become inefficient. This also applies to domestic ...

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