Difference between revisions of "3. Free market philosophy"
| Line 5: | Line 5: | ||
http://contohpengertian.com/wp-content/uploads/2013/06/ekonomi-mikro1.jpg | http://contohpengertian.com/wp-content/uploads/2013/06/ekonomi-mikro1.jpg | ||
| − | Supply and demand allow the trader to decide the value of a certain object, and | + | Supply and demand allow the trader to decide the value of a certain object, and explain the changing value of objects from day to day. As price and quantity increase, supply increases, whereas when price and quantity increase demand decreases. In the cookie analogy, if I already got my brownie over another person who only offered two cookies but all of a sudden there were two other people with a brownies and these people instead wanted four cookies the other person wanting a brownie might decide she actually wanted her cookies and not trade to get a brownie. As the price and quantity went up, the demand went down. In similar fashion, because the demand went down but the price and quantity have not the supply of brownies has increased. |
| − | '''Supply and demand are the base of the free market philosophy, the free market philosophy states that a free market with little regulation by the government and only based on supply and demand will eventually balance itself out.'''* This idea is a basic tenet of the Modern West because in the west many people are not in favor of large central governments controlling different aspects of life. The free market philosophy, though it was used heavily in ancient times, is an ideological view of government and in our modern day societies would probably fail. However, modern day societies with only little involvement in the form of taxes and subsidies | + | '''Supply and demand are the base of the free market philosophy, the free market philosophy states that a free market with little regulation by the government and only based on supply and demand will eventually balance itself out.'''* This idea is a basic tenet of the Modern West because in the west many people are not in favor of large central governments controlling different aspects of life. The free market philosophy, though it was used heavily in ancient times, is an ideological view of government and in our modern day societies would probably fail. However, modern day societies with only little involvement in the form of taxes and subsidies do tend to work and allow an almost-free market. |
---- | ---- | ||
Revision as of 19:49, 18 February 2015
*History 8 Mesopotamia Vocabulary
"Free Market" is a summary term for any exchanges in a society. Basically a free market means that all trade is voluntary, agreed upon by both parties. Both parties assume they are getting something out of the trade based on how they value the sum or object. In order for a free market or trade in general to exist, both parties must feel like they are in a win-win situation, if one party feels as though they are losing value then they will usually not agree to perform the trade. For example, when at lunch I offer to trade you my three cookies for your brownie, I feel as though I have gotten something, the brownie, out of the trade, while you feel like you got something, the cookies. However, if I had only offered one cookie you might feel that I got the better deal and not agree to the trade until we were able to negotiate and you got a fair trade. In the real world price is determined by supply and demand.
Supply and demand allow the trader to decide the value of a certain object, and explain the changing value of objects from day to day. As price and quantity increase, supply increases, whereas when price and quantity increase demand decreases. In the cookie analogy, if I already got my brownie over another person who only offered two cookies but all of a sudden there were two other people with a brownies and these people instead wanted four cookies the other person wanting a brownie might decide she actually wanted her cookies and not trade to get a brownie. As the price and quantity went up, the demand went down. In similar fashion, because the demand went down but the price and quantity have not the supply of brownies has increased.
Supply and demand are the base of the free market philosophy, the free market philosophy states that a free market with little regulation by the government and only based on supply and demand will eventually balance itself out.* This idea is a basic tenet of the Modern West because in the west many people are not in favor of large central governments controlling different aspects of life. The free market philosophy, though it was used heavily in ancient times, is an ideological view of government and in our modern day societies would probably fail. However, modern day societies with only little involvement in the form of taxes and subsidies do tend to work and allow an almost-free market.
Sources:
Manual Page: 85
The Concise Encyclopedia of Economics: Free Market [1]
Investopedia: Free Market [2]
- Bolding Indicates short answer for study purposes
Anna-William Kornberg
