How does a free market economy encourage new businesses to start and succeed?

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gsenviro | College Teacher | (Level 1) Educator Emeritus

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A free market economy is governed by the forces of supply and demand in the market. This means that prices of commodities are set by these forces, rather than any regulatory agency (such as government, etc.). Such a market system is highly conducive to private business and entrepreneurship. New businesses need support of the market to start and succeed. In a regulated market, there are entry barriers and/or price fixation by the government, which limits the entry of new private players. In a free market, innovative products launched by new businesses will find their own buyers at prices set by supply and demand patterns. If there is sufficient demand, new businesses will succeed and motivate more people to start their own venture. In such a free system, it is also easier to obtain funding to launch a new venture, as compared to a regulated market.

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