Most people feel that a free market alternative for any transactional arrangement is always best and...
Most people feel that a free market alternative for any transactional arrangement is always best and the most efficient approach in our capitalist economy.
What are your initial thoughts of exceptions to this belief?
Homework Answers
Answer) Free market arrangements are inspired by Adam Smith invisible hand, where the self interest of both consumers and producers ensure that market reaches an equilibrium. Such an arrangement is successful if there is complete information available.
However in the contemporary times lacunae such as symmetrical information, public good, and externality cause the market to fail . In such cases the doctrine of free market alternative falls flat.
If free market is left one to be guided by self interest. Then there could a possibility of the consumer exploitation. For instance, capitalism as an economic system arose out of self interest. But the system is itself exploitative in nature and causes a widespread income equality.
In some cases free market works. But in most cases a government needs to intervene to assure that no consumer exploitation takes place.
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