In this task I will be talking about the free market economy and how it operates but also how the setting of price sends ‘signals’ within this system. I will be looking at how markets nevertheless fail to operate efficiently and why the UK government might seek to control the prices of products or services in the economy and their motives for doing so, but also evaluating the degree in which the legal system of the UK might act to avoid exploitation of consumers in price setting or any other ways. At the end I will bring all my information together in a conclusion.

A free market economy is an economy in which an allocation for resources is determined only by their supply and demand they have. There is no intervention of the superior powers such as government control in any of their activities in the market and that way the free market has idealized form from which the market economy has buyers and sellers who are allowed to transact freely. The transactions are based on mutual agreement on price without the state involvement on the form of taxes, subsidies or regulation. However based on the values and methods of the economy, there were several models developed so people can understand and analyse the economic system.

Here are a few of the models with explanations of what the market economy has:

Drivers, in which a market economy gain vibrancy from private enterprises in which they invest into developing the facilities they have to provide certain products and services in response to their consumer demands and what they aquire.

Distinctive Features are what market econmies have and they can be decentralised, supple, realistic, and unpredictible in nature. They are not therefore managed by government ministry. An econmists called Adam Smith had a unique describing for market forces as “invisible hand” this is what guides market economies. The “invisible hand represents the responsibility of the production of goods and services, and what they are priced at, in the market economy. However this would guide consumers to participate and trade goods in the market in the most mutual beneficial behaviour.

Consumer freedom states that the market economy is practical but also the elementary theory has an important role in which it plays. Consumers like to pick different products and services which suit them in the market economy, therefore giving the producers to expand or start a business on conditions that suit him but also any investors if they are sharing. In this the worker can choose what they do such as how they do their job, join in unions or organisations as long as they are permitted by the law or change who they employ.

The price signals are messages which are sent to the consumers and producers in the way in which price is charged for commodity, this can be seen as an indication for producers to increase their supplies and/or consumers to reduce demand.

The free price system/mechanisms are the econmomic system where prices are set by interchange, depending on supply and demand. The resulting prices therefore are understood as signals which the consumer and producer communicate to expand the production to meet customer demands.

Markets failure is a theory in which the allocation of goods and services by a free market are not efficient and if the price signals do not work properly then this can lead to market failure. There are businesses in the private sector which can also not be able to provide public goods which leads to market failure and also markets can fail as they do not bring in the economic efficiency to operate.