In AS-level Economics, I learned that there are 3 types of economy; Free Market, Centrally Planned Economy and Mixed Economy. From what I know, Free Market is essential when it comes to maintaining high efficiency level in a market. If government restricts what market participants can or cannot do, then they won’t be able to use their resources to the full capacity to maximise profits. This will in turn, create all sorts of inefficiencies as firms have lose their incentive to innovate.
“The free market doesn’t exist”
Free market is defined as a type of market economy that based on supply and demand with little or no government control but as we all know, every market has some degree of regulations in it. E.g. Pollution permits. A market might looks free but that is because we, as a consumers, have accept its underlying restrictions, that we failed to see them. Government is always involved and it has been said that free-market economists are as politically motivated as anyone. There is no such thing as a definition that could define how free a market is because a same market can be seen to have varying degrees of freedom by different people.
“Labour ought to be free”
An example of government intervention in 1819, where there is a new legislation to regulate child labour. Government is restricting the number of hours that children can work per day and ban children under the age of 9 from working. The argument is that in a free market, there is supply and demand of labour. Factory owners demand labour and children are willing to and need to work (supply). So, why is government dictating whether children can work or not? This will cause inefficiency in resource allocation and the market won’t be free. However, the author cleverly said that: whether the market is free depends upon individuals’ opinion on the regulation. “If you believe the right of children not to have to work is more important than the right of factory owners to be able to hire whoever they find most profitable, you will not see a ban on child labour as an infringement on the freedom of the labour market.”
“Free market is an illusion”
In todays world, most people accept certain regulations as ‘natural’. E.g. Environmental regulation. People believe that actions that harm others need to be restricted. Therefore, they totally accept the regulations that they become invisible. Hence why some markets look free.
Thank you for your time :)