Concept of the Free-Market Economy in Free Trade

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Introduction

Through globalization, many countries have embraced free-market trading in their economies. In free trade, the government permits traders to conduct business freely without regulations or imposed taxes. Traders mutually agree with buyers on the best price to transact. However, free trade is a bit flawed, and critics argue that it is only theoretically faultless (Friedman, 2003). Therefore, this document critically analyzes free trade, critically considering its positive and negative sides.

In a free-market economy, traders possess the freedom to produce and sell their products and services setting their own predetermined prices, based on mechanisms of demand and supply, and without the government’s intervention (Hayami & Godo, 2005).

Free market also allows producers to increase their supply to the market, and face the risks or enjoy the benefits related to it. Moreover, consumers have the freedom to purchase items at the price predetermined by the traders, in any amounts, depending on their capability and willingness.

Free market also leads to increased competition and consumers have the capacity to acquire the best products and services at a reasonable price. Introduction of new products in the market comes with high prices tagged on them. However, through free-market trade, others copy the idea and introduce similar products, thereby reducing their prices significantly (Friedman, 2003). Moreover, the stiff competition compels these traders to manufacture products of high quality, in a bid to outdo their competitors.

This benefits the consumers significantly, since traders supply a range of high valued goods and services at reduced prices. Moreover, as foreign investors venture into a host country, foreign exchange increases, thereby boosting a country’s economic growth. Free market also increases employment opportunities and improves the citizens’ living standards.

Some of the imperfections of free market are that private investors may not be willing to supply some essential goods and services. For instance, they may not engage in education, since it is not profitable (Gershon, 2009). Moreover, if they manage to supply these services, they are not able to cater for all residents. In addition, since markets are free, powerful traders may dominate markets, thus lead to rise in monopolies.

Some of these monopolies increase prices of commodities, and thereby result in exploiting the consumers, since there is little or no government intervention in controlling prices (Friedman, 2003). Besides, these companies target wealthy people and mostly supply luxury goods, since they are inclined in profit maximization. They overlook the poor consumers, thereby leading to an unbalanced economy. This may also lead to overconsumption of injurious products such as cigarettes and alcohol.

Moreover, since these investors venture only in the highly profitable businesses, there is uneven utilization of resources, resulting in wastage of useful resources. Conversely, there is a rise in pollution, since traders increase wastes while trying to maximize their profits through increased production (Gershon, 2009).

Additionally, unhealthy competition may arise, since the government does not control the number of businesses present in a particular market situation. As a result, strong traders may push less powerful traders out of the market, and thus aggravate the problem of unemployment in the host countries (Friedman, 2003).

It is evident that free markets have their merits as well as demerits. Some of the merits of free market are increased efficiency, production of high quality goods, and increase in foreign exchange. On the other hand, free markets may lead to monopolization and exploitation of consumers. In addition, there may be unhealthy competition, thereby leading in job displacement. In my opinion, it is advisable to minimize the negative aspects of free trade and use it to boost a country’s economy.

References

Friedman, K. (2003). Myths of the free market. New York, NY: Algora Publishers.

Gershon, R. (2009). Telecommunications and business strategy. New York, NY: Rout ledge/Taylor and Francis Group.

Hayami, Y. & Godo, Y. (2005). Development economics: from the poverty to the wealth of nations. Oxford, OX: Oxford University Press.

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Concept of the Free-Market Economy in Free Trade

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