Editing Free market (section)

== Concepts ==
=== Economic equilibrium ===
{{main|Economic equilibrium}}
[[File:FreePrice.JPG|thumb|A diagram showing the "effects of price freedom"]]
The [[general equilibrium theory]] has demonstrated that, under certain theoretical conditions of [[Perfect Competition|perfect competition]], the law of [[supply and demand]] influences prices toward an [[Economic equilibrium|equilibrium]] that balances the demands for the products against the supplies.<ref>''Theory of Value'' by [[Gérard Debreu]].</ref>{{full citation needed|date=February 2022}} At these equilibrium prices, the market distributes the products to the purchasers according to each purchaser's preference or [[utility]] for each product and within the relative limits of each buyer's [[purchasing power]]. This result is described as market efficiency, or more specifically a [[Pareto optimum]].

=== Low barriers to entry ===
{{main|Barriers to entry}}
A free market does not directly require the existence of competition; however, it does require a framework that freely allows new market entrants. Hence, competition in a free market is a consequence of the conditions of a free market, including that market participants not be obstructed from following their [[profit motive]].

=== Perfect competition and market failure ===
{{main|Perfect competition|Market failure}}
An absence of any of the conditions of perfect competition is considered a [[market failure]]. Regulatory intervention may provide a substitute force to counter a market failure, which leads some economists to believe that some forms of market regulation may be better than an unregulated market at providing a free market.<ref name="Popper 1994" />

=== Spontaneous order ===
{{main|Spontaneous order}}
{{See also|Invisible hand}}
[[Friedrich Hayek]] popularized the view that market economies promote [[spontaneous order]] which results in a better "allocation of societal resources than any design could achieve".<ref>Hayek cited. Petsoulas, Christina. ''Hayek's Liberalism and Its Origins: His Idea of Spontaneous Order and the Scottish Enlightenment''. Routledge. 2001. p. 2.</ref> According to this view, market economies are characterized by the formation of complex transactional networks that produce and distribute goods and services throughout the economy. These networks are not designed, but they nevertheless emerge as a result of decentralized individual economic decisions.<ref>{{Cite journal |last=Jaffe |first=Klaus |date=2014 |title=Agent Based Simulations Visualize Adam Smith's Invisible Hand by Solving Friedrich Hayek's Economic Calculus |url=http://www.ssrn.com/abstract=2695557 |journal=SSRN Electronic Journal |language=en |doi=10.2139/ssrn.2695557 |arxiv=1509.04264 |s2cid=17075259 |issn=1556-5068}}</ref> The idea of spontaneous order is an elaboration on the [[invisible hand]] proposed by [[Adam Smith]] in ''[[The Wealth of Nations]]''. About the individual, Smith wrote:
<blockquote>By preferring the support of domestic to that of foreign industry, he intends only his own security; and by directing that industry in such a manner as its produce may be of the greatest value, he intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of it. By pursuing his own interest, he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.<ref>Smith, Adam (1827). ''The Wealth of Nations''. Book IV. [https://books.google.com/books?id=rpMuAAAAYAAJ&pg=PA184 p. 184] {{Webarchive|url=https://web.archive.org/web/20230118144732/https://books.google.com/books?id=rpMuAAAAYAAJ&pg=PA184 |date=2023-01-18 }}.</ref></blockquote>

Smith pointed out that one does not get one's dinner by appealing to the brother-love of the butcher, the farmer or the baker. Rather, one appeals to their self-interest and pays them for their labor, arguing:
<blockquote>It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages.<ref>{{cite book|last=Smith|first=Adam|author-link=Adam Smith|title=The Wealth of Nations|place=London|publisher=W. Strahan and T. Cadell|year=1776|volume=1|chapter=2}}</ref></blockquote>

Supporters of this view claim that spontaneous order is superior to any order that does not allow individuals to make their own choices of what to produce, what to buy, what to sell and at what prices due to the number and complexity of the factors involved. They further believe that any attempt to implement central planning will result in more disorder, or a less efficient production and distribution of goods and services.

Critics such as political economist [[Karl Polanyi]] question whether a spontaneously ordered market can exist, completely free of distortions of political policy, claiming that even the ostensibly freest markets require a state to exercise coercive power in some areas, namely to enforce [[contract]]s, govern the formation of [[labor union]]s, spell out the rights and obligations of [[corporation]]s, shape who has standing to bring legal actions and define what constitutes an unacceptable [[conflict of interest]].<ref>[[Jacob S. Hacker|Hacker, Jacob S.]]; [[Paul Pierson|Pierson, Paul]] (2010). ''Winner-Take-All Politics: How Washington Made the Rich Richer – and Turned Its Back on the Middle Class''. Simon & Schuster. p. 55.</ref>

=== Supply and demand ===
{{main|Supply and demand}}
Demand for an item (such as a good or service) refers to the economic market pressure from people trying to buy it. Buyers have a maximum price they are willing to pay for an item, and sellers have a minimum price at which they are willing to offer their product. The point at which the supply and demand curves meet is the equilibrium price of the good and quantity demanded. Sellers willing to offer their goods at a lower price than the equilibrium price receive the difference as [[producer surplus]]. Buyers willing to pay for goods at a higher price than the equilibrium price receive the difference as [[consumer surplus]].<ref name="Judd1997">{{cite journal| doi = 10.1016/S0165-1889(97)00010-9| title = Computational economics and economic theory: Substitutes or complements?| journal = [[Journal of Economic Dynamics and Control]]| volume = 21| issue = 6| pages = 907–942| year = 1997| last1 = Judd| first1 = K. L.| s2cid = 55347101| url = http://www.nber.org/papers/t0208.pdf| access-date = 2019-08-08| archive-date = 2020-05-20| archive-url = https://web.archive.org/web/20200520052928/https://www.nber.org/papers/t0208.pdf| url-status = live}}</ref>

The model is commonly applied to wages in the market for labor. The typical roles of supplier and consumer are reversed. The suppliers are individuals, who try to sell (supply) their labor for the highest price. The consumers are businesses, which try to buy (demand) the type of labor they need at the lowest price. As more people offer their labor in that market, the equilibrium wage decreases and the equilibrium level of employment increases as the supply curve shifts to the right. The opposite happens if fewer people offer their wages in the market as the supply curve shifts to the left.<ref name="Judd1997"/>

In a free market, individuals and firms taking part in these transactions have the liberty to enter, leave and participate in the market as they so choose. Prices and quantities are allowed to adjust according to economic conditions in order to reach equilibrium and allocate resources. However, in many countries around the world governments seek to intervene in the free market in order to achieve certain social or political agendas.<ref>{{cite web|url=http://wps.pearsoned.co.uk/ema_uk_he_sloman_econbus_3/18/4748/1215583.cw/ |title=Chapter 20: Reasons for government intervention in the market |access-date=2014-06-06 |url-status=dead|archive-url=https://web.archive.org/web/20140522012501/http://wps.pearsoned.co.uk/ema_uk_he_sloman_econbus_3/18/4748/1215583.cw/ |archive-date=2014-05-22 }}</ref> Governments may attempt to create [[social equality]] or [[equality of outcome]] by intervening in the market through actions such as imposing a [[minimum wage]] (price floor) or erecting [[price controls]] (price ceiling). 

Other lesser-known goals are also pursued, such as in the United States, where the federal government subsidizes owners of fertile land to not grow crops in order to prevent the supply curve from further shifting to the right and decreasing the equilibrium price. This is done under the justification of maintaining farmers' profits; due to the relative [[Elasticity (economics)|inelasticity]] of demand for crops, increased supply would lower the price but not significantly increase quantity demanded, thus placing pressure on farmers to exit the market.<ref>{{cite news |title=Farm Program Pays $1.3 Billion to People Who Don't Farm |newspaper=[[Washington Post]] |date=2 July 2006 |access-date=3 June 2014 |url=https://www.washingtonpost.com/wp-dyn/content/article/2006/07/01/AR2006070100962.html |archive-date=4 September 2021 |archive-url=https://web.archive.org/web/20210904195617/https://www.washingtonpost.com/wp-dyn/content/article/2006/07/01/AR2006070100962.html |url-status=live }}</ref> Those interventions are often done in the name of maintaining basic assumptions of free markets such as the idea that the costs of production must be included in the price of goods. Pollution and depletion costs are sometimes not included in the cost of production (a manufacturer that withdraws water at one location then discharges it polluted downstream, avoiding the cost of treating the water), therefore governments may opt to impose regulations in an attempt to try to internalize all of the cost of production and ultimately include them in the price of the goods.

Advocates of the free market contend that government intervention hampers economic growth by disrupting the efficient allocation of resources according to supply and demand while critics of the free market contend that government intervention is sometimes necessary to protect a country's economy from better-developed and more influential economies, while providing the stability necessary for wise long-term investment. [[Milton Friedman]] argued against [[central planning]], [[price controls]] and [[Government-owned corporation|state-owned corporations]], particularly as practiced in the [[Economy of the Soviet Union|Soviet Union]] and [[Economy of China|China]]<ref>{{Cite web|url=http://www.columbia.edu/~esp2/WSJ%20Whitehouse%20Article.pdf |archive-url=https://web.archive.org/web/20100625233550/http://www.columbia.edu/%7Eesp2/WSJ%20Whitehouse%20Article.pdf |archive-date=2010-06-25 |url-status=live|title=Ip, Greg and Mark Whitehouse, "How Milton Friedman Changed Economics, Policy and Markets", ''Wall Street Journal Online'' (November 17, 2006).}}</ref> while [[Ha-Joon Chang]] cites the examples of post-war Japan and the growth of South Korea's steel industry as positive examples of government intervention.<ref>"[[Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism]]", Ha-Joon Chang, Bloomsbury Press, {{ISBN|978-1596915985}}{{page needed|date=March 2022}}</ref>