Theoretically, a free market is a market where price is dependent on the mutual agreement between buyers and sellers without intervention in the form of taxes, subsidies or regulation from the government. A free market system allows producers to set their own prices and consumers to have the freedom of choice. However, there is also an unequal distribution of wealth and a high risk of monopoly by a single firm in a free market system. Faced with both the pros and cons of this particular market system, I believe that the ideal markets system would be one that combines both the free market and command market systems. One example of this is a mixed economy, where production is carried out by private companies but the government steps in to regulate activities when necessary.
One of the advantages of a free market economy is that it is highly efficient as there is minimal wastage in terms of overproduction. In a free market, price is determined via supply and demand instead of being fixed by the government. This allows producers to detect consumer preferences, shortages and surpluses with a considerable level of accuracy and thus, price and production rate can be adjusted accordingly. For example, when supply starts to exceed demand, price will decrease due to the operation of supply and demand. Producers will then heed the warning of decreased prices and cease production or suffer profit losses. From this example, we can see that, to have maximum efficiency and minimum wastage, a free market system is necessary.
Another benefit of the free market is the fact that competition can exist, therefore producers will be obligated to maintain quality and keep prices down in the bid to attract more customers. As a result, consumers have the freedom of choice since quality and price is not universal among producers. For instance, in late 2005, Sony unveiled a 40-inch, flat-panel, LCD TV for about $3,500. Currently, a higher-quality, larger-display is just over $2,000. Competition in a free market compels firms to be innovative and inventive whilst keeping their costs down; consumers can thus enjoy lowered prices and increased variety simultaneously.
Nevertheless, there are also downsides to the free market system. One of these disadvantages is the unequal distribution of wealth. Hypothetically, a free market system allows everyone an equal opportunity to succeed. In practice however, this is a fallacy. Opportunity is dependant on the labour market, academic qualifications, inborn abilities, gender, race and culture; just to name a few. Research conducted by the London School of Economics showed that even after taking account of differences in their academic qualifications, the disabled were more than two and a half times as likely to be out of job as the able at age 26; showing that it is indeed true that not everyone has equal opportunities, even in a free market system. Statistics show that in the United States at the end of 2001, the...