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| DEFINITION |
A free market economy is one where scarcities are
resolved through changes in relative prices rather than through regulation.
If a commodity is in short supply relative to the number of people who
want to buy it, its price will rise, producers and sellers will make higher
profits and production will tend to rise to meet the excess demand. If
the available supply of a commodity is in a glut situation, the price
will tend to fall, thereby attracting additional buyers and discouraging
producers and sellers from entering the market. In a free market, buyers
and sellers come together voluntarily to decide on what products to produce
and sell and buy, and how resources such as labour and capital should
be used.
A free market can be contrasted with a controlled market, where prices
are determined by a regulatory or administrative authority and do not
respond flexibly in the face of varying demand and supply conditions.
Controlled markets are characterized by rationingif production falls short
of demand, or a buildup of unsold stocks if production exceeds demand.
In Canada, the economy is mostly a free market, although it could be more
properly be called a mixed market because there are regulations and controls
in some areas.
| LINKS |
Canada - World Trade Organization (WTO)
Source: International Trade Canada
http://www.international.gc.ca/tna-nac/wto-en.asp
Key Economic Events – North America
Free Trade Agreement
Source: Canadian Economy Online
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