Is the free market good

A free market economy offers these advantages

The free market economy determines our everyday life. Everyone can choose the profession of their choice, found a company and help shape what is available on the market. All of these aspects are possible because Germany is a country with a free market economy. A definition makes it clear which advantages the system brings. After all, the economies of many countries are based on that of a free market.

Free Market Economy: A Definition

The form of the free market economy that exists today goes back to the ideas of Adam Smith. Free market economy means that the state has little influence on economic activity, but the market regulates itself. This works through supply and demand. Services and goods are only provided when someone is willing to buy them. It is the task of the state to create the legal framework so that the market can be operated freely.

The pricing is also not taken over by the state, but regulated by supply and demand. If there is little demand, the offer has to be adjusted accordingly and the prices may have to be reduced. If the demand is high, the prices can be higher.

An example illustrates this process

A baker has 20 loaves of bread and starts with 2 euros for his bread. Now he sells 10 loaves for 2 euros a loaf within 10 minutes and there are still 20 people in his bakery for the last 10 loaves because it is so good. Now he can also charge 3 euros per bread, since he can set the prices as he wants and the demand is very high. So it is very likely that customers would be willing to pay this slightly increased price. In this way the seller maximizes his profit.

But if he were to ask 10 euros for a piece of bread, the price would probably be too high and the demand would drop. If he sells all his bread and there are still 10 people in line, the demand exceeds the supply and the baker has to bake new bread.

Free market economy as an idealized form

Another point in the definition of the free market economy is that the means used to produce are privately owned. In addition, in a free market economy there is free choice of profession and freedom of consumption. The aim of the producers' economy is to make as much profit as possible. For a market economy to work, it needs a medium of exchange that can be exchanged for goods. The medium of exchange is money.

All of these factors that, according to Adam Smith, make up a market economy, rather characterize the idealized vision of it. In no country in the world is a free market economy practiced in its purest form. The German form of the free market economy is also called the social market economy, as there are socio-political restrictions on the market. Social hardship should be cushioned in this way.

A free market economy has many advantages

Living in a country whose economic system is based on the fundamentals of the free market economy is associated with many advantages and freedoms for its citizens. Everyone can help shape the offer and influence the market by providing services or goods. Consumers can also intervene in the market through their daily shopping behavior by influencing demand. This can also be done consciously in order to achieve certain goals.


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