specialisation

• Free market


  Any place where buyers meet suppliers to exchange goods and services, free from government intervention
• At equilibrium in a free market, allocative efficiency is attained
• Allocative efficiency in a free market


  • Resources perfectly follow consumer demand
  • Maximizing society surplus (consumer and producer surplus)
  • Maximizing net social benefit (marginal social benefit equals marginal social cost)
• Benefits of market forces


  • Lack of long-run disequilibrium (rationing, signaling, and incentive functions of price)
  • Highly competitive markets (low prices, high consumer surplus, high quantity, high choice, high quality)
  • Dynamic efficiency (reinvestment in technology, innovation, capital upgrades)
  • High job creation
  • Economic growth and higher living standards
  • Freedom for individuals to live the life they want
• Issues with market forces


  • Market failures (lack of competition, imperfect information, externalities, public goods)
  • Inequitable prices (excluding low-income consumers from necessities)
  • Excessive profiteering (dangerous cost-cutting, moral issues)
  • Creative destruction (high unemployment)
  • Price volatility (burden on consumers and producers)