Question

Assignment # 1 What are the philosophical foundations of free-market ideology? 1. 2. Explain how in reality markets are and cannot be free of government intervention. What are the arguments for and against such intervention? What is meant by market failure? List six examples of such failures and explain how each example you give constitutes a market failure. What would be a remedy to each of these failures? 3. 4. In the first chapter of the textbook, you have a description of how exchange works in a free market. What are the flaws of the simple exchange story? What is a more realistic exchange in modern economies? 5. Explain the meaning of spot contracts and relational contracts and difference between the 6. What is money? 7. Explain the process by which money is created and how it is also destroyed. 8. What is the difference between "Central Bank money or reserves" and "commercial 9. How does the Central Bank affect credit creation and how does it implement its monetary two. banks' money? policy?

Answer 1

ans 1=

The terminology ‘free market’ is sometimes utilized as a synonym of ‘laissez-faire capitalism’. When most persons discuss the ‘free market,’ they imply an economy with unhindered competition & only private dealings between purchasers and sellers. But, a more inclusive description should incorporate any voluntary economic activity as long as its not controlled by powerful central authorities.

Utilizing this explanation, laissez faire capitalism & voluntary socialism are both instances of a free market, although the latter incorporates a collective ownership of the means of production. The vital characteristic is the absence of coercive restrictions regarding economic activity. Coercion may occur in a free market thru prior joint agreement in a voluntary pact, like contractual remedies enforced by the tort rule.

The Free Market's link with Capitalism & Individual Liberty

No modern nation functions with totally uninhibited free markets. That stated, the most free markets tend to coincide with nations which value capitalism, private property and individual rights. This makes sense as political systems which back away from regulations / subsidies for individual behaviour inevitably interfere less with voluntary economic dealings. Also, free markets are expected to grow & flourish in a set up where property rights are safeguarded & there is incentive for capitalists to pursue profits.