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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