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. Insights

    Government Regulations: Do They Help Businesses?

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

    Mixed Economic System

    Many of today's democracies operate under what is known as a mixed economic system, which combines aspects of capitalism and socialism.
  3. Investing

    It's Not Illegal If The Government Does It

    The government allows itself the leeway to do many things that would be illegal for a private citizen or corporation.
  4. Insights

    Political Ideologies And Stocks

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

    4 Factors That Shape Market Trends

    Discover the four major factors that shape market trends: Government, international transactions, speculation/expectation, and supply and demand. These areas are all linked as expected future ...
  6. Insights

    How and Why Companies Become Monopolies

    Without competition, monopolies can raise prices and lower quality, leaving consumers little choice. But monopolies can benefit consumers as well.
  7. Insights

    Financial Regulations: Glass-Steagall to Dodd-Frank

    Here are some of the most important financial regulations that have been established.
  8. Small Business

    Risks Associated With Government Contracts

    Government contracts can be rewarding, but they also come with a variety of risks.
Trading Center