Free trade marketJohannes Röll 30 / April / 21 Visitors: 381
Many economies strive to implement the concept of free trade market in its true meaning. However, some do not fully comply with its requirements due to the fact that consumers can still be influenced or forced in some way. This goes against its main principle as voluntary exchange constitutes the basis of its definition. Free trade market is an economic system where people are allowed to willingly exchange goods, services and money without obstacles. One of the examples of the free market could be a situation where a person can freely trade their money, manpower or any other personal possession for anything that is going to bring benefit for both parties. In this trade, any party sees the offered product as more valuable than the one they give up.
Most of today's relatively free trade markets use money as the main item for the exchange process. Money can serve this purpose as long as all market participants regard it as valuable. Its actual value is not as important as the value which people prescribe it. In other words, the majority of people will accept the official currency in exchange for goods and services because they know that the majority of other people will also accept it. The concept of price refers to such economic categories as supply and demand. Governments or any other organizations do not control economic decision so the rule of supply and demand is key factors of price determination in the free market. Generally, if demand exceeds supply, prices increase; and vice versa, in cases of supply excess over demand, prices decrease. Thus, the market adjusts production processes and eliminates non-competitive manufacturers and mediator creating a sustainable balance.
As you will be able to tell, despite the intended state noninvolvement in the economy, free trade market must be legally regulated anyway and therefore, there has to be a strong governmental enforcement. Conditions for development of a perfectly competitive market:
- free access to the market with an unlimited number of participants;
- well-established mechanisms of property rights protection and protection from unfair competition (fraud, pressure by force), antimonopoly restrictions;
- spontaneously determined prices regulated exclusively by supply and demand;
- free movement of goods and services.
Every individual participating in the economic exchange should make some value judgments. These decisions are based on multiple factors including personal preferences and needs. They fluctuate depending on basic human needs such as food and shelter going all the way to more complex necessities such as social status and safety. All the value judgments are made by customers in the free trade market; that is why their opinion is highly valued and respected. However, such system is not flawless and rarely carried out in practice because any modern economy cannot have fully free markets as long as there are still some forms of regulations.
There are some objections regarding free market because obvious theoretical flaws prevent it from being the best solution for the economy. The first reason is based on the fact that there is no social responsibility. Paradoxically, it results in capital concentration by means of eliminating weak market participants and subsequent formation of monopolies. And as you might know, there is no free competition in a monopoly. Simple commodity production with a great degree of free competition was a part early capitalism despite the fact that the government was actively involved in the market operations through fees and taxes. To a large extent, perfectly free trade remains a theoretical construct. You could use this idealized model to compare the concept with real markets. However, freedom of capital movement and trade still takes place in the conditions of monopolized economy and plays a significant role in the world economy.
Several disadvantages of this system are:
- non-renewable resources are not preserved;
- no incentives towards environmental conservation;
- inability to carry out social services for the public;
- scientific research is not encouraged;
- no stability in economic development;
- risks of vast unemployment.
Johannes Röll was born 1978 in Brilon,Germany. Graduated RWTH Aachen University. Over the past ten years he worked as Head of the plastic card team, where he was mainly responsible for the development of the distribution, Head of sales Department and Financial Analyst,where he got experience in planning and support sales figures for branches. For the present he works as freelancer