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What Is a Liberal Market Economy?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 November 2014
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A liberal market economy is a type of economic system that provides the ability for companies to interact with other companies, their employees, customers, and suppliers in whatever mechanisms they prefer, within the broad regulations implemented by a government. Usually considered a form of a free enterprise system or at least a mixed economy that includes significant freedoms in how business is conducted, the liberal market economy is a fairly common system used in many nations around the world. As with any of the market economies in current use, this system offers a combination of benefits as well as potential drawbacks.

One of the earmarks of this kind of economy is the free price system that prevails. Companies are free to set prices for their goods and services based on factors such as costs of production and the demand for those products in the marketplace. Any governmental restrictions on pricing normally have to do with limiting the potential for monopolies to charge rates considered out of line with the general state of the economy, effectively making it possible for competition in the marketplace to occur. This same ability to set pricing in order to conform with the general economy and the state of the marketplace also allows companies to negotiate competitive rates with suppliers that make it possible for the business to produce goods and services at costs that encourage the creation of a profit from each sale.

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The liberal market economy is often considered an example of a mixed economy that draws on practices found in any free enterprise system while also incorporating some elements of a social market economy into the mix. This creates an economy in which the degree of government intervention is usually kept within a certain range, rather than governments controlling certain sectors of the marketplace. At the same time, a liberal market economy also includes government intervention as a means of creating a basis for both domestic and international commerce between businesses, often in the form of legislation that requires business transactions to only take place within specific boundaries set by those laws.

Since a liberal market economy does provide an environment in which competition is encouraged, the potential of businesses to grow over time is considerable. At the same time, the limitations on the checks and balances imposed by governments can sometimes be viewed as catering to big business at the expense of consumers, especially those who have little to no disposable income. This can sometimes lead to shifts in the degree of government intervention in the marketplace, with legislation sometimes favoring consumers and at other times providing incentives to businesses that are designed to encourage economic growth that ultimately benefits everyone involved.

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turquoise
Post 3

@fBoyle-- There are degrees of being liberal. I think the US falls somewhere in between liberal and moderately liberal. There are some countries that have more liberal economies than us, but there are many countries that are less liberal. For example, European Union countries' economies are not as liberal as ours. France is only moderately liberal.

There is an organization that does research on this and puts out an index annually. So this information changes every year. Some years, our economy is considered less liberal, and on others, more. When there is an economic crisis one year, the government has to intervene more than usual and we get a lower rating on the index that year.

I guess what I'm trying to say is that this is all kind of subjective.

fBoyle
Post 2

@ZipLine-- The article actually touched on this. If there is absolutely no regulation in a liberal market economy, a few major players will come to dominate each industry. This will cause smaller firms to go bankrupt or they won't be able to enter the industry at all. A liberal market economy depends on fair competition. If there is fair competition, the economy will grow, the country will develop and consumers will be able to buy goods at fair prices. This is why the government has to intervene at times.

The opposite of a liberal market economy is a planned market economy where prices are set by the government. So as long as prices are set by the market itself, that system is called a liberal market economy. I don't think that there is such a thing as a completely liberal economy. All liberal economies are mixed economies where there is some kind of regulation.

ZipLine
Post 1

I've read that a completely liberal market economy is not good and that there always needs to be some kind of intervention and regulation by a government. Why is this?

US is a liberal market economy. Have we experienced any disadvantages because of it?

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