Free market facts for kids

A free market is a way of organizing how things are bought and sold. In this system, the prices for goods and services are decided by the people who want to buy them (customers) and the people who want to sell them (businesses). It's like a big marketplace where everyone agrees on a price without a government or a single powerful company telling them what to do.

This system works because of something called supply and demand. If lots of people want something (high demand) and there isn't much of it available (low supply), the price will likely go up. If there's a lot of something (high supply) and not many people want it (low demand), the price will probably go down. A free market lets these forces work naturally.

A free market is different from a regulated market. In a regulated market, the government might step in. It could set prices or make rules that stop new businesses from joining the market. In a free market, businesses are usually owned by private individuals or companies, not the government. This often leads to a lot of competition among businesses.

While free markets are often talked about with Capitalism, some other groups also support parts of the free market idea. These include some types of Socialism and groups who believe in Anarchism.

What is a Free Market?

A free market is an economic system where prices are set by buyers and sellers. No government or other authority tells businesses what to charge. It's all about what people are willing to pay and what businesses are willing to accept. This system lets prices find their own level.

Think of it like this: if many people want a new video game, and only a few copies are available, the price might be high. But if the game isn't very popular, or there are many copies, the price will likely drop. This is how supply and demand work together in a free market.

How Prices are Set

In a free market, prices are decided by the interaction of supply and demand.

• Supply is how much of a product or service is available to buy.
• Demand is how much people want to buy that product or service.

When supply and demand meet, they reach a point called equilibrium. This is the price where sellers are happy to sell, and buyers are happy to buy. It's the natural price that the market finds on its own. For example, if a new toy is very popular, its demand is high. If stores only have a few, the supply is low. This usually means the toy will cost more.

Who Owns What?

In a free market economy, most businesses and resources are owned by private individuals or companies. This is called private ownership. It means that people can start their own businesses and decide what to produce.

This private ownership often leads to strong competition. Businesses try to offer the best products or services at the best prices. They do this to attract customers. This competition can be good for customers because it often means better quality and lower prices.

Free Markets and Other Ideas

When people talk about free markets, they often think about Capitalism. Capitalism is an economic system where private individuals own most of the businesses. They aim to make a profit.

However, the idea of free markets isn't only supported by capitalists. Some groups who believe in Market socialism also support certain free market ideas. They might believe in competition but want workers to own businesses together. Even some who believe in Anarchism support free markets, but without any government at all.

Images for kids

• 

  A diagram showing the "effects of price freedom"

See also

In Spanish: Mercado libre para niños