wht is free market?

[Sum]

how prices are determined in a free market. Refer to the factors of supply and demand and the equilibrium

[iraqisax]

The free market is where people buy and sell without government interference. In the free market, prices are determined by the buyer. For example, if I am selling apples, and I am asking $1 apiece for them, I am making an offering. If nobody is buying, I will have to lower my price. Eventually, someone will purchase an apple. That determines the price. it is whatever someone will pay.

It is the same for services. If you are a musician, and you refuse to work for less than $1000 per night, you may or may not get any work. If you try $500 and still get no bites, you have to lower your price. Eventually, your asking price will be accepted (provided you are any good).

Sometimes the buyer will make an offer. Now the seller can agree to that price, or hold out for more money.

Supply and demand refer to what the seller can get, price wise. Supply refers to how many of the item are available. Demand refers to how many people want an item.

What makes a rare coin valuable. The fact that it is rare implies the supply is small. If you try to sell that coin to a group of coin collectors, you will get a better price than if you try to sell it to people on the street. The reason for that is, coin collectors want that coin, and may bid against each other to purchase it. A person on the street may realize that the coin is valuable, but since he is not a collector, he is not interested, unless the price is low.

[waterlili]

A free market is a market where the price of each item or service is arranged by the mutual consent of sellers and buyers (see supply and demand); the opposite is a controlled market, where supply and price are set by a government.[ However, while a free market necessitates that government does not dictate prices, it also requires the traders themselves do not coerce or defraud each other, so that all trades are morally voluntary.

The notion of a free market is closely associated with laissez-faire economic philosophy, which advocates approximating this condition in the real world by mostly confining government intervention in economic matters to regulating against force and fraud among market participants. Hence, with government force limited to a defensive role, government itself does not initiate force in the marketplace beyond levying taxes in order to fund the maintenance of the free marketplace. Some free market advocates oppose taxation as well, claiming that the market is better at providing all valuable services including defense and law. Anarcho-capitalists, for example, would substitute arbitration agencies and private defense agencies.

In political economics, the opposite extreme to the free market economy is the command economy, where decisions regarding production, distribution, and pricing are a matter of governmental control. In other words, a free market economy is "an economic system in which individuals, rather than government, make the majority of decisions regarding economic activities and transactions."In social philosophy, a free market economy is a system for allocating goods within a society: supply and demand within the market determine who gets what and what is produced, rather than the state. Early proponents of a free-market economy in 18th century Europe contrasted it with the medieval, early-modern and mercantilist economies which preceded it.

Supply and Demand

Demand for an item (such as goods or services) refers to the market pressure from people trying to buy it. They will "bid" money for the item, while sellers offer the item for money. When the bid matches the offer, a transaction can easily occur (even automatically, as in a typical stock market). When supply exceeds demand, buyers often find that they can lower their bids, and sellers may compete with each other by lowering their offered prices (see buyer's market). Suppliers may choose to respond to the situation by lowering production or going out of business. A street corner with 4 competing hot dog vendors might have so much supply the price falls below the minimum needed for it to be worthwhile for one of the vendors to keep selling hot dogs there. He can easily move to another street corner. Moving a gas station is much harder.

When demand exceeds supply, suppliers can raise the price. Consumers who can afford the higher prices may still buy, but others may forego the purchase altogether, buy a similar item, or shop elsewhere. ("A two-dollar hot dog? I'd rather buy a hamburger at McDonald's!")

As the price rises, suppliers may also choose to increase production. Or more suppliers may enter the business. For example, the gourmet coffee business, pioneered by Starbucks, revealed a demand for three-dollar cups of coffee. Other stores began offering such coffee to satisfy the demand.

Increased demand can result in lower prices, particularly with computers and other electronic devices. Mass production techniques have been steadily reducing prices 20 to 30% per year since the 1960s. The functions of a multi-million dollar mainframe computer in the 1960s could be performed by a $500 dollar computer in the 2000s. The camcorder has been said to place "a television studio in your hand".