FREE MARKET

Natural Laws of Economics

According to Smith, there

are 3 natural laws of

economics

Law of self-interest people

work for their own good

Competition law

competition forces people
to make a better product

Law of supply and demand

enough goods would be
produced at the lowest
possible price to meet

demand

The Free

Market

• In economics, a free market is an economic system in which the prices

of goods and services are determined by supply and demand
expressed by sellers and buyers.

• Such markets, as modeled, operate without the intervention of

government or any other external authority.

• Proponents of the free market as a normative ideal contrast it with a

regulated market, in which a government intervenes in supply and
demand by means of various methods such as taxes or regulations.

• In an idealized free market economy, prices for goods and services are

set solely by the bids and offers of the participants

« laisser faire »

Foundation of capitalism

• Another basic principle of laissez-

faire holds that markets should
naturally be competitive, a rule that
the early advocates of laissez-
faire always emphasized. With the
aims of maximizing freedom by
allowing markets to self-regulate,
early advocates of laissez-
faire proposed a impôt unique, a tax
on land rent to replace all taxes that
they saw as damaging welfare by
penalizing production

• The laissez-faire principle

expresses a preference for
an absence of non-market
pressures on prices and
wages such as those from
discriminatory government
taxes, subsidies, tariffs,
regulations, or government-
granted monopolies.

The invisible Hand

The Invisible Hand is a metaphor, introduced by the 18th-century Scottish philosopher and economist Adam Smith,for how, in a free market economy, self-interested individuals operate through a system of mutual interdependence. This interdependence incentivizes producers to make what is socially necessary, even though they may care only about their own well-being.

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