Updated July 15, 2023

Introduction of Free Market Economy

A free market economy means an ecosystem (i.e., forces of production and labor) of a country controlled purely by the demand and supply forces with minimal or no government intervention and which encourages entrepreneurialism by allowing voluntary activities performed by private players unless it control by governmental authorities such as minimum wages and antitrust laws.

Explanation

As the name suggests, a free market economy is an economy that is not restricted by governmental laws, and the forces of demand and supply move everything.
In simple language, let’s imagine an economy wherein the goods are trading in the market at the highest prices at which the consumers are ready to buy them; the services provide as per the satisfaction level of the recipient, and laborers are paid the highest wages the businesses can pay purely on the basis of their performance. Sounds great! This is what we can use for a “free market economy”.
However, an economy wherein the government imposes a law on companies to pay minimum wages to their laborers irrespective of actual performance degrades the quality of labor. Such laws did not introduce in the free market economy.
Also, in an economy controlled by the government, the prices of the means of production and the manner of distribution of wealth are organized by the government.
So this allows the employer to pay for the services per the laborer’s requirements and skills. On the other hand, it allows employees to charge as per their skill, competitiveness, and demand in the economy.

Features of the Free Market Economy

Freedom allows people within the country to choose goods to consume and services to enjoy.
Governmental intervention is almost NIL or negligible.
Such an economy increases competition in the market.
With the increased competition, perks such as lowering prices, increasing output quality with the best possible efficiency, distributing wealth to deserving people, etc., are achieved.
The labor receives the highest wages for their quality services, and the consumers pay the highest prices for the quality of goods or services.
The ownership of almost everything moves from government to private players.
Reduction in monopolies market of government entities and private players are allowed to compete.

How Does It Work?

The basis of the free market economy is the thought process of an individual in the country who is trying to satisfy his needs on the basis of his competitiveness, quality of work, and knowledge. He does not want the government to force the prices favorably or unfavorably.
A free-market economy is also known as a “Laissez-Faire Economy,” which means letting people do what they wish. It allows the employer to quote bidding (i.e., higher prices) for the best quality of labor. On the other hand, the labor grabs the opportunity as per their competitive spirit.
Now the simple question arises “What role does the government have in a free economy?” or “whether the free market economy does not need a government?” Well, a country without a government is like a journey without milestones. The government in a free market economy provides the rules for the path.

Example of a Free Market Economy

Few believe that a free market economy is a myth and does not exist. Rather, they believe that the market requires to follow some policies made by the government. The United States of America is said to be one of such free-market economies.

Now the obvious question arises in a layman’s: Who decides the ranking of economies per the freedom enjoyed? “The Index of Economic Freedom,” created by “The Heritage Foundation” way back in 1995 ranks the degree of economic freedom of various countries around the globe. We have chosen the united states of America to present the freedom:

The American continent:

Source: https://www.heritage.org/index/heatmap

The United States’ overall score of freedom: