why is there no such thing as a perfect free market economy?

Answer 1

Because it assumes that people themselves, and their circumstances, are perfect. In a perfect free market economy, people are free to buy from whomever they choose. If they do not like the price or quality of an item, or the policies of a store, they can go elsewhere. But in our society, there are many companies which have a virtual monopoly on pricing. A store like Wal-Mart will have an advantage, in that they can buy items in bulk so they will get better prices from their manufacturers, and squeeze out any competition. Another example is a company we have problems with in the model rocket community, called Estes Industries. They are the leading manufacturer of model rockets, by far, and they take advantage of it. They are also by far the largest producer of model rocket engines, which are necessary to run the rockets. They are going to the large hobby stores and threatening them--if you do not carry our rockets exclusively, we will not sell anything to you, including our engines. That would virtually eliminate all the stores' sales in that category, so they have no choice. So a perfect free market that relies on businesses never pressing their advantage, and running their businesses exclusively with the best interests of the customers in mind can never exist.

Answer 2

Anyone that says government regulations prevent the existence of a perfect free market economy either never took econ 101 or didn't pay attention.

The fact is that a "perfect free market" and all its attendant economic goodness requires certain conditions, none of which can ever be met perfectly, even under a completely laissez-faire government. These assumptions are:

Atomicity: An atomistic market is one in which there are a large number of small producers and consumers on a given market, each so small that its actions have no significant impact on others. Firms are price takers, meaning that the market sets the price that they must choose.

Homogeneity: Goods and services are perfect substitutes; that is, there is no product differentiation.

Perfect and complete information: All firms and consumers know the prices set by all firms

Equal access: All firms have access to production technologies, and resources are perfectly mobile.

Free entry: Any firm may enter or exit the market as it wishes.

Individual buyers and sellers act independently: The market is such that there is no scope for groups of buyers and/or sellers to come together with a view to changing the market price

Answer 3

The short answer is: we live in an imperfect world. This may sound trite, but it's true.

Perfect competition requires perfect information (i.e. I can't know more about the market than you do), which is nearly impossible, because somebody almost always knows more than the next person about a product or market. This is called assymetric information.

Additionally, perfect competition requires no government intervention, which is highly unlikely, because governments represent their citizens, and some citizens have more power than others; thus, certain groups will always be more represented by their governments than others.

There are lots of other reasons along these lines, but this is the basic idea.

In any event, most economists would probably suggest that the objective of working toward "perfect" competition is sufficient, even if it isn't attainable. The fewer distortions, the better the market mechanism can operate.

Answer 4

A perfect market requires perfect information for suppliers and demander, among other things, such as the free movement of price (including the price of labour - ie wages), perfect substitutes (ie one good can be used as another without losing "utility") free entry and exit of the market and thus no "extra" profit and the market has to be cleared (ie supply must equal demand). These are just some of the things needed.

Government regulations, contracts and the individual "economic man" are some of the things that prevent the perfect market.

Answer 5

Government interference is the main problem. Rules are made up to try to make things fair for consumers. Railroads in the US are the best example of the cost of government regulation. Price fixing by government made it impossible for railroads to make profits enough to expand and modernize. In a true free market, a seller can charge whatever he wants for his goods or services. The buyer then chooses to buy or not. Crying to government officials about high prices would not be an option.

Answer 6

Monopoly is the main problem! Communication is next. I will not bore you with the invisible finger problems.

Answer 7

Because people, for various reasons (some of which may be valid) perceive a need for regulations.

Answer 8

rules are implemented due to some abusing the system... thus more try to circumvent the rules...resulting in more rules due to more abuse.... a vicious circle