The free market is the perfect mechanism that ensures market stability and equilibrium
The free market is the perfect mechanism that ensures market stability and equilibrium. What is your opinion?
You have learned about the free market mechanism and how it is functioning via the
‘invisible hand’. (I bet you know who Adam Smith is. If not, go to this link:
http://plus.maths.org/content/os/issue14/features/smith/index to read an article on
this issue.) Many argue that this is the perfect mechanism that ensures market
stability and equilibrium. Others disagree. What is your opinion? Provide the
arguments and give (a) real world example(s) to support your point of view.
The free market system as a way of managing economic affairs has brought forth an interesting
debate that is far from conclusion. The present discussion agrees with the proposition that the
free market ensures market stability and equilibrium. The central role of any economic system
that a given society uses is to ensure efficient allocation of resources (Schumpeter 15). Free
market mechanism facilitates efficient allocation of scarce resources. Supply and demand
matches and everybody is facilitated to maximize their welfare.
In a free market system, markets make use of virtually all information available within a given
society. Hayek contends that a command market system cannot sufficiently get access to all of
the daily and local types of information concerning production materials, techniques, demand
and so on held by shopkeepers, workers and others all the way to the top most layer of the
society (77). In reality, top-down organization of economic affairs fails since information is
extremely expensive to be centralized. The free market mechanism on the other hand succeeds
because it allows society to have a sort of distributed cognition.
Free market mechanism ensures that power and discretion are limited. Within a competitive
market system, no player has enough power to act as the sole price setter. As such, there is no
actor can literary dictate the price of goods and services.
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