Reference no: EM132456648
Topic: Give an example in the marketplace that describes the principles of the free market and competition.
Original post: Competition - A market structure in which there are many firms; where there is freedom Capitalism: an economic system characterized by private or corporate ownership of capital goods, by investments that are determined by private decision, and by prices, production, and the distribution of goods that are determined mainly by competition in a free market (Merriam-Webster, n.d).
According to the definition, any capitalistic country is a free market. So any business or businesses that come together to trade under this umbrella would technically be an example of free market trade. But definition and reality fail to comparison. With that said, one example of a true free market would be charity. All items are privately owned with the authority at the lowest level. There is equal treatment for all due to the fact that you typically don't choose who receives items that are offered. Another example is an auction, for example eBay. There is private ownership where the prices are subject to change by the demand. There is fair treatment as anyone can bid on an item with equal rules for all. One of the principles of free market is limited role of government. With that said, I am not sure there is an example of a true free market as ole' Uncle Sam is involved in everything.
An example of marketplace competition would be the stock exchange. Buyers and sellers decide on a price, either on-line or the trading floor, where everyone has the same relevant information to bid or trade on a stock. Furthermore, none of the buyers are large in relation to total sales/profit. Lastly, anyone can freely enter and exit the market at their own-will.
1. When it all comes down to definition, it really is impressive that our economy, which is deemed the most powerful economy in the world, still has to rely on government intervention. You're spot in stating that Uncle Sam has his mitts in just about everything. You mentioned charities, but even those are regulated to a degree. They are given strict guidelines by the taxing authority in order to be tax exempt. I believe in a free market, there would be no such guidelines. The charity and the donors would be the ones governing monetary concerns. Thoughts?
2. Great post! However, I'm not so sure that charity would be an example of a true free market. First, there has to be many buyers and sellers. With charity, I don't believe that you have either a buyer or a seller. Only givers and receivers. The text says: "The theory of perfect competition describes how firms act in a market structure in which (1) there are many buyers and sellers, none of whom is large in relation to total sales or purchases; (2) sellers sell a homogeneous product; 3) buyers and sellers have all relevant information; and (4) market entry and exit are easy (Arnold, 2015)". Also, there isn't a homogeneous product or any product at all. Unless, you consider each charity a product. If each charity is a product, they are all different and not interchangeable. I could very well be wrong. I'm interested to hear your thoughts.
3. Based on the readings and your enriching discussion, explain the difference between "competition" and "perfect competition". Be specific.