Free Market

The free market represents an unregulated system of economic exchange. “Unregulated” in this context means that taxes, governmental quality controls, quotas, tariffs, and other forms of centralized economic interventions by government do not exist or are at least minimal. From this definition, it is clear that the “free market” represents an ideal type that does not actually exist. In reality, modern societies can only approach or approximate this ideal of efficient resource allocation. In other words, real markets can be described along a spectrum ranging from low to high amounts of regulation. Many economists (e.g., Adam Smith, the father of modern economics) consider resource allocation in a free market to be efficient. According to Vilfredo Pareto, who elaborated on this concept of market efficiency, a ...