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the market in relation to how favorably buyers evaluate these
goods. In shorthand, by the interaction of their supply with the
demand for them.
The modern market is a highly complex, interacting
latticework of exchanges. In primitive societies, exchanges are all
barter or direct exchange. But as a society develops, the process of
mutual benefit creates a situation in which one or two broadly
useful and valuable commodities are chosen on the market as a
medium of indirect exchange. This money – commodity,
generally but not always gold or silver, is then demanded not only
for its own sake, but even more to facilitate a reexchange for
another desired commodity.
The modern market is made possible by the use of money.
Each person engages in specialization, or a division of labor,
producing what he or is best at. Production begins with natural
resources, and then various forms of machines and capital goods,
until finally; goods are sold to the consumer. At each stage of
production from natural resource to consumer good, money is
voluntarily exchanged for capital goods, labor services, and land
resources. At each step of the way, terms of exchange, or prices,
are determined by the voluntary interactions of suppliers and
demanders. This market is “free” because choices, at each step,
are made freely and voluntarily.
The free market and the free price system make goods
from around the world available to consumers. The free market
also gives the largest possible scope to entrepreneurs, who risk
capital to allocate resources so as to satisfy the future desires of
the mass of consumers as efficiently as possible. Saving and
investment can then develop capital goods and increase the
productivity and wages of workers, thereby increasing their
standard of living. The free competitive market also rewards
and stimulates technological innovation that allows the
innovator to get a head start in satisfying consumer wants in
new and creative ways.
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