Wikipedia describes free market as; "a market without economic intervention and regulation by government except to regulate against force or fraud."
The hypothetical situation is, if, in all countries, free market existed, worldwide free market if you will. We all know that this will never happen, but, hypothetically speaking, would a worldwide free market bring about good changes, bad changes or both? Why? Your personal opinion?
Free Market
Started by: Myself | Replies: 4 | Views: 489
Oct 3, 2009 3:46 AM #495081
Oct 3, 2009 4:43 AM #495108
Any laissez-faire market system only means one thing: the rich get richer.
no no no no no.
A good mix of socialistic ideas and capitalistic ideas is what we need.
no no no no no.
A good mix of socialistic ideas and capitalistic ideas is what we need.
Oct 3, 2009 5:25 AM #495125
Yeah! Cause those two aren't complete opposites. XDXDDXDXD
But yeah I agree With dragoooooooooooon, capitoatialism is the way to go.
But yeah I agree With dragoooooooooooon, capitoatialism is the way to go.
Oct 3, 2009 7:08 AM #495150
I suppose I should revise my economic theory every now and again. Let's see how i do without notes.
A worldwide free market ultimately means that any individual good is only produced in one country. This is because there will always be one country that can produce something with a lower opportunity cost than every other country in the world. This is true by definition, I can prove it mathematically if you like but for now just accept it. The good that you have the lowest opportunity cost in will be the one that you produce in the free market system because it is the one that you can make the most profit from relatively. If there are two goods which you hold a comparative advantage in, they will be produced at the point where the square area from the production possibility frontier to the origin is largest (insert graph here for five extra marks) or they will only produce the good with the single lowest opportunity cost and shift production on to the country with the second best comparative advantage, depending on the situation and the individual figures concerned. With this repeated thoughout the world, every product will be produced in one country, and one country only. This leads to world output being maximised as opportunity cost is minimised.
Some countries, however, will not hold a comparative advantage in any product. They would, therefore, be unable to produce anything because no matter what they produce, they are going to be undercut in price by the country with the comparative advantage and this means that consumers, even in the country itself, will only buy from the foreign producer. Free trade leads to the economic devastation of countries who are not overly efficient or specialised in one particular good.
Also, in the short term, there will be a large ammount of resistance to specialisation. There is never complete mobility of labour, land, or capital and this means that it is almost impossible to switch an entire nations production to one good. It would take many years from the instigation of a global free market for the productive optimum to be reached.
To summarise: It'll mean that any individual good is made more efficiently and in total world output will increase, but it's practically impossible to make it happen and some smaller and less efficient countries get screwed over.
If I had time I'd mention absolute advantage and the fact that one country might not be able to meet the aggregate demand, especially for merit goods, but I don't.
A worldwide free market ultimately means that any individual good is only produced in one country. This is because there will always be one country that can produce something with a lower opportunity cost than every other country in the world. This is true by definition, I can prove it mathematically if you like but for now just accept it. The good that you have the lowest opportunity cost in will be the one that you produce in the free market system because it is the one that you can make the most profit from relatively. If there are two goods which you hold a comparative advantage in, they will be produced at the point where the square area from the production possibility frontier to the origin is largest (insert graph here for five extra marks) or they will only produce the good with the single lowest opportunity cost and shift production on to the country with the second best comparative advantage, depending on the situation and the individual figures concerned. With this repeated thoughout the world, every product will be produced in one country, and one country only. This leads to world output being maximised as opportunity cost is minimised.
Some countries, however, will not hold a comparative advantage in any product. They would, therefore, be unable to produce anything because no matter what they produce, they are going to be undercut in price by the country with the comparative advantage and this means that consumers, even in the country itself, will only buy from the foreign producer. Free trade leads to the economic devastation of countries who are not overly efficient or specialised in one particular good.
Also, in the short term, there will be a large ammount of resistance to specialisation. There is never complete mobility of labour, land, or capital and this means that it is almost impossible to switch an entire nations production to one good. It would take many years from the instigation of a global free market for the productive optimum to be reached.
To summarise: It'll mean that any individual good is made more efficiently and in total world output will increase, but it's practically impossible to make it happen and some smaller and less efficient countries get screwed over.
If I had time I'd mention absolute advantage and the fact that one country might not be able to meet the aggregate demand, especially for merit goods, but I don't.
Oct 3, 2009 12:32 PM #495219
If you look at the history of the free market in the United States, you'll find the reason that we moved away from it: During the Industrial Revolution, companies could hire anyone they want, have whatever facilities they want, and pay whatever wages they want. This led to the deaths of hundreds of children, namely in one event where a textile factory, whose air was filled with small fibres, burnt down, with several children trapped inside the building because, in the absence of fire codes, their boss had locked the fire exit to make sure they didn't sneak out of work early. The fibres int he air cause the air itself to catch fire, burning these children alive.
In a free-market economy, there can be no fire codes for businesses. That would be an example of the government mandating how a business can function.
During this same time period, thousands of children were working instead of going to school so that they could be paid the most meager wages imaginable at the time to work in dangerous, unhealthy conditions. Children lost hands and feet in factory machinery, girls had a permanent curve in their spine from bending over sewing machines for 10 hours at a time, viruses spread like wildfire in these factories, and in some cases the children actually had to live in the factories themselves, because the time required for them to walk home was too long and resulted in the loss of production time for the factory.
In a free-market economy, there can be no labor laws. Minimum Wages and Child Labor laws limit businesses from functioning freely.
The United States has the freest kind of economy possible without sacrificing the protection of workers. Many other countries have adopted the same strategy.
Laissez-faire is a terrible system.
In a free-market economy, there can be no fire codes for businesses. That would be an example of the government mandating how a business can function.
During this same time period, thousands of children were working instead of going to school so that they could be paid the most meager wages imaginable at the time to work in dangerous, unhealthy conditions. Children lost hands and feet in factory machinery, girls had a permanent curve in their spine from bending over sewing machines for 10 hours at a time, viruses spread like wildfire in these factories, and in some cases the children actually had to live in the factories themselves, because the time required for them to walk home was too long and resulted in the loss of production time for the factory.
In a free-market economy, there can be no labor laws. Minimum Wages and Child Labor laws limit businesses from functioning freely.
The United States has the freest kind of economy possible without sacrificing the protection of workers. Many other countries have adopted the same strategy.
Laissez-faire is a terrible system.