A free market pertains to a market whose prices of goods and services are virtually formulated by the reciprocal consent of buyers and sellers.
Essentially, under a free market context, the seller and the buyer should not betray or manipulate one another, and no third party should force their hand. The effect of such decisions is specified by the law of supply and demand.
A free market economy can be distinguished by the fact that all markets within it are free. This is achieved through several measures which include protection of property rights, without the need for coercive regulation, coercive subsidization, coercive government imposed monopolistic monetary system, as well as no coercive governmental monopolies.
Free markets differ significantly with controlled economies in which governments often manipulate the market signals either directly or indirectly through the regulation of prices. Generally, the asking price of an item or service measures its value to consumers, thereby positioning it accordingly against products or services.
In a free market, the connection between price and value is ascertained by the dynamics of supply and demand and also through competition factors. The market economy is associated with a concept which broadens the competitive area to the point of limiting the government intervention in the event of market failure.
Taxation issues are sometimes raised by those in favor of the free market system, arguing that the market tends to be more efficient in the provision of valuable services, if direct taxation is scrapped.
Therefore, with the government restricted to a defensive role, it carries out very little in the direction of collection of taxes aimed at ensuring the sustainability of the market economy. Some economists are convinced that the free market is a prescriptive concept instead of descriptive, and contend that policies which divert from this, are defective although some may deliver short term social benefits.
In economics, the antithesis of the market economy relates to the planned economy whose decisions on production, distribution and fixing prices are the in the hands of the state. Additional models such as the gift economy and the subsistence economy also exist. While the mixed economy is the cornerstone for socio-economic policies applied by the majority of countries.
There are basically two view points around the issue of the ethical justification of free markets. The first one puts forward elements of autonomy and freedom in the market, while the other revolves around the devising of free economic decisions which should produce superior results. The results pertain to a thoroughly well organized, efficient, and productive economy.