Free Market Economies

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Basic Features

 

i)             Private ownership of the productive resources:  All productive resources in the form of soil, factories,. Means of transport, shops, theatres, newspapers etc are privately owned by individuals and their groups. A Few productive resources may be owned by the government; but their contribution to total production is very small.

 

ii)           Private Use of the Productive Resources:  This is a corollary of the 1st feature. As the ownership of the productive resources is with individuals, their use is also with the individuals. Every farmer decides the commodity to be produced in his land. Every industrialist decides the commodity to be produced.

 

iii)         Profit Motive: All Productive activities are undertaken with the intention of earning a profit that is an income. The concerned person has to produce something which would satisfy the want of the community and thereby would increase social welfare but the primary end of an individual in taking up any productive activity is to earn an Income.

 

iv)          Non interference on the part of the government: The government does not interfere in economic activities. The people are free to take up any productive activity and conduct it in their own way, within the legal framework.

 

v)            Price Mechanism:  The production of different goods and services and the allocation of the resources in the production of different goods and services is regulated by the invisible hand of the price mechanism. If the people want larger quantity of a commodity, the demand for that commodity rises. Till the supply rises, the demand exceeds supply with the result that the price of the commodity rises. This is a green signal for the producers. They increase the production of the concerned commodity by diverting productive resources from other commodities to the concerned commodity.

 

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