Free market
A free market is an economic system. In this system prices for goods and services are determined by the laws of supply and demand. No other forces act on the market. One example of a party that influences the market is the government. It could fix the price or it could set a minimum or maximum price. Another is that there may be a monopoly for certain goods. . A free market contrasts with a regulated market. People who support a free market usually are in favor of highly competitive markets and private ownership.
Free markets are commonly seen as a feature of capitalism. A market economy also has a free market.
When there is perfect competition, no single market player can influence the price. This means that the law of supply and demand will play in full. It also means that at the market price, the maximum number of items will be sold. If the price is higher, then some sellers will not sell, because the price is too high. There will be a surplus. If the price is lower, people would like to buy omre goods than there are; this is called a shortage. The law of supply and demand will therefore pull the price towards the market price.This is called economic equilibrium. 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.
