Free market - Revision history

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	[[Category:Done ~~2016~~-04-30]]		[[Category:Done 2026-07-01]]
	[[File:Market-SDcurve2.png\|350px\|thumbnail\|right\|Figure 1. Supply and demand interact in a market to create an equilibrium price and quantity of a [[goods and services \| good or service]].<ref>Wikimedia Commons. (May 14, 20156). Market Curves [Online]. Available: https://commons.wikimedia.org/wiki/File:Supply-demand-equilibrium.svg</ref>]]		[[File:Market-SDcurve2.png\|350px\|thumbnail\|right\|Figure 1. Supply and demand interact in a market to create an equilibrium price and quantity of a [[goods and services \| good or service]].<ref>Wikimedia Commons. (May 14, 20156). Market Curves [Online]. Available: https://commons.wikimedia.org/wiki/File:Supply-demand-equilibrium.svg</ref>]]
	A '''market''' is where buyers and sellers exchange [[goods and services]]. This market can be physical or virtual and is usually defined by the whatever is exchanged;<ref>D. Rutherford. ‘’Routlege Dictionary of Economics’’. London: Routlege, 1995, pp. 286.</ref> for example [[petroleum]] is exchanged on the [[oil market]]. Usually, markets are good for society because these transactions allow people to get the goods and services that they want. These goods and services are exchanged for [[currency]], information, or just other goods and services. Anything that someone values can be exchanged in a market, but today usually a buyer is paying money for a seller else to provide something. The way that buyers and sellers interact in the market determines the how much will be provided (the [[supply]]) and how badly these goods and services are wanted (the [[demand]]). The interaction between supply and demand of the goods and services will determine the [[market value]] (the [[price]]) and quality amount that will be sold.		A '''market''' is where buyers and sellers exchange [[goods and services]]. This market can be physical or virtual and is usually defined by the whatever is exchanged;<ref>D. Rutherford. ‘’Routlege Dictionary of Economics’’. London: Routlege, 1995, pp. 286.</ref> for example [[petroleum]] is exchanged on the [[oil market]]. Usually, markets are good for society because these transactions allow people to get the goods and services that they want. These goods and services are exchanged for [[currency]], information, or just other goods and services. Anything that someone values can be exchanged in a market, but today usually a buyer is paying money for a seller else to provide something. The way that buyers and sellers interact in the market determines the how much will be provided (the [[supply]]) and how badly these goods and services are wanted (the [[demand]]). The interaction between supply and demand of the goods and services will determine the [[market value]] (the [[price]]) and quality amount that will be sold.
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	==References==		==References==
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[[Category:Done 2016-04-30]]
[[File:Market-SDcurve2.png|350px|thumbnail|right|Figure 1. Supply and demand interact in a market to create an equilibrium price and quantity of a [[goods and services | good or service]].<ref>Wikimedia Commons. (May 14, 20156). Market Curves [Online]. Available: https://commons.wikimedia.org/wiki/File:Supply-demand-equilibrium.svg</ref>]]
A '''market''' is where buyers and sellers exchange [[goods and services]]. This market can be physical or virtual and is usually defined by the whatever is exchanged;<ref>D. Rutherford. ‘’Routlege Dictionary of Economics’’. London: Routlege, 1995, pp. 286.</ref> for example [[petroleum]] is exchanged on the [[oil market]]. Usually, markets are good for society because these transactions allow people to get the goods and services that they want. These goods and services are exchanged for [[currency]], information, or just other goods and services. Anything that someone values can be exchanged in a market, but today usually a buyer is paying money for a seller else to provide something. The way that buyers and sellers interact in the market determines the how much will be provided (the [[supply]]) and how badly these goods and services are wanted (the [[demand]]). The interaction between supply and demand of the goods and services will determine the [[market value]] (the [[price]]) and quality amount that will be sold.

<onlyinclude>A [[market economy]] (also known as a '''free market''') is one that is unburdened by [[regulation]] and the economy is therefore subject to the supply and demand market forces.</onlyinclude> The free market is an abstract idealization first proposed by Adam Smith in his work, ''The Wealth of Nations''. This model is driven by supply and demand where there is [[perfect competition]] meaning buyers and sellers may transact as they please without [[tax]]ation and other government regulations at an [[Market equilibrium | equilibrium]].<ref>J.Black, N. Hashimzade, and G. Myles. (2009) ‘’A Dictionary of Economics’’, 3rd ed. [Online], Available: http://www.oxfordreference.com/view/10.1093/acref/9780199237043.001.0001/acref-9780199237043-e-1283?rskey=RlGbO9&result=1</ref> Like any model, a free market is a simplification of markets in the real world.

Market economies are not ‘perfect’. With no government regulation, [[market structure]]s emerge and change the way a market operates. In other words, market economies interact with themselves to create situations that make themselves inefficient! [[Monopoly | monopolies]], [[oligopoly | oligopolies]], [[monopsony | monopsonies]] or [[oligopsony | oligopsonies]] may form which distort prices by restricting supply or demand.<ref>A. B. Abel, et al. Macroeconomics, 6th ed. Toronto, Canada: Pearson, 2011, pp. 216.</ref> The under-supply and imperfect [[price standardization]] in a market creates a [[deadweight loss]] in the economy which creates [[market efficiency | inefficiencies]] and have a net negative effect.<ref>A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 373-374</ref>. Free markets are inherently prone to an unequal distribution of wealth in the economy, this is often measured using the [[Gini coefficient]].<ref>P. A. Rogerson. "Gini Coefficient of Inequality: A New Interpretation". ''Letters in Spatial and Resource Sciences'', 6. pp 109, August, 2013.</ref>

More importantly, no price ever reflects the true [[cost]] for a transaction. This difference between the money exchanged in a market and the total consequences for making this transaction are called externalities. Externalities are effects experienced by third parties as a result of economic activity.<ref name = Goolsbee>A. Goolsbee, S. Levitt and C. Syverson. ‘’Microeconomics’’. New York: Worth Publishers, 2013, pp. 645.</ref> Market economies produce [[externality | externalities]]. These effects can be either [[negative externality| negative]] such as [[pollution]] from burning [[coal]] for [[electricity]] or [[positive externality| positive]] such as the implementation of higher safety regulations at [[nuclear power plant]]s. A negative externality occurs when the [[cost | social cost]] is not considered when looking at the [[cost | production cost]] or [[cost | private cost]]. This means that society suffers from negative effects from the economic activity (like [[air pollution]] from a [[coal fired power plant]]). A positive externality occurs when the [[cost | benefits to society ]] aren't taken into account in the [[cost | private cost]]. This creates a potential gain in welfare or an increase in social good.<ref name = Goolsbee/> There are ways in which a free market can compensate for negative externalities created by its unregulated activities without government intervention or the implementation of regulation. One such way is the [[Coase theorem]] which suggest that if one desires to correct a negative effect they experience, they can create incentives for the party creating the effect. This creates a situation in which a firm will want to fix the problems.

==References==
{{reflist}}