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Free market
"Free market" is a summary term for an array of exchanges that take
place in society. Each exchange is undertaken as a voluntary agreement
between two people or between groups of people represented by agents.
These two individuals (or agents) exchange two economic goods, either
tangible commodities or nontangible services. Thus, when I buy a newspaper
from a newsdealer for fifty cents, the newsdealer and I exchange
two commodities: I give up fifty cents, and the newsdealer gives up the
newspaper. Or if I work for a corporation, I exchange my labor services, in
a mutually agreed way, for a monetary salary; here the corporation is represented
by a manager (an agent) with the authority to hire.
Both parties undertake the exchange because each expects to gain
from it. Also, each will repeat the exchange next time (or refuse to) because
his expectation has proved correct (or incorrect) in the recent past.
Trade, or exchange, is engaged in precisely because both parties benefit; if
they did not expect to gain, they would not agree to the exchange.
How can both parties benefit from an exchange? Each one values the two
goods or services differently, and these differences set the scene for an exchange.
I, for example, am walking along with money in my pocket but no
newspaper; the newsdealer, on the other hand, has plenty of newspapers but is
anxious to acquire money. And so, finding each other, we strike a deal.