Next video:
Loading the player...

Free market refers to an economy where the government imposes few or no restrictions and regulations on buyers and sellers. In a free market, participants determine what products are produced, how, when and where they are made, to whom they are offered, and at what price—all based on supply and demand.

A purely free market does not exist—because all countries choose to impose some level of central decisions and regulations.

For example, many countries forbid producers from polluting, pricing below cost, or being a monopoly. In addition, they often require minimum safety standards, disclosure of ingredients, licensing of certain professionals, and protection of original ideas, to name just a few. Many governments control money supply to minimize the negative effects of natural economic expansion and contraction.

Free market can also be more of a subjective term.

In western democracies, governments that are elected by citizens pass regulations. Therefore, these regulations protect a majority of citizens, and reflect their values. These markets feel free to most of the citizens, even when they are highly regulated.

In autocratic governments, non-elected governments impose major market decisions. These rules tend to feel oppressive, even if there may be fewer overall regulations.

The pros and cons of a free market are subject to debate all over the world, and are one of the major dividing lines between capitalist and communist economies.

Related Articles
  1. Personal Finance

    Market Economy

    In a market economy, economic decisions and prices are determined by market forces rather than by central planning.
  2. Insights

    Government Regulations: Do They Help Businesses?

    These rules are in place to protect consumers and help businesses thrive at the same time.
  3. Investing

    What's a Centrally Planned Economy?

    A centrally planned economy is one where the government controls the country’s supply and demand of goods and services.
  4. Insights

    The Pitfalls Of Financial Regulation

    Regulatory actions usually have lofty intentions that end up with unintended and negative consequences.
  5. Personal Finance

    What's Free Enterprise?

    Free enterprise is the economic term used to describe an economy with very little government ownership or regulation. In a free enterprise system, competition and the preferences and choices ...
  6. Investing

    4 Misconceptions About Free Markets

    These fallacies have hounded free market economists since the days of Adam Smith.
  7. Insights

    Political Ideologies And Stocks

    Learn how different political systems affect emerging market stocks.
  8. Insights

    How Governments Influence Markets

    The biggest influence in the markets today can create some unintended consequences.
  9. Insights

    Government Regulations: Do They Help Businesses?

    Is it possible that laws created to protect consumers can benefit businesses at the same time?
  10. Taxes

    When Is Dual Citizenship Not A Good Idea?

    There are many ways to become a dual citizen, and doing so offers certain benefits. But there are a few disadvantages, as well.
Hot Definitions
  1. Payback Period

    The length of time required to recover the cost of an investment. The payback period of a given investment or project is ...
  2. Collateral Value

    The estimated fair market value of an asset that is being used as loan collateral. Collateral value is determined by appraisal ...
  3. Fiduciary

    A fiduciary is a person who acts on behalf of another person, or persons to manage assets.
  4. Current Account

    The difference between a nation’s savings and its investment. The current account is defined as the sum of goods and services ...
  5. Liability

    Liabilities are defined as a company's legal debts or obligations that arise during the course of business operations.
  6. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
Trading Center