What is the connection between the freedom to voluntarily exchange and supply and demand in the American marketplace?  

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pohnpei397 eNotes educator| Certified Educator

Without the freedom to voluntarily exchange goods and services (and money), there would be no such thing as supply and demand.  Thus, the freedom to voluntarily exchange makes supply and demand possible and creates the American marketplace (and our market economy).

Supply and demand are the bases of a free market economy.  Supply and demand determine what sorts of goods and services are offered for sale, how many are bought, and at what prices.  Supply and demand create the “invisible hand” that efficiently runs our economy, making sure that people can (so far as is possible) get all of the goods and services they want and need.

Supply is defined as the amount of a good or service that producers are willing and able to offer for sale at any given selling price.  Demand is defined as the amount of the good or service that consumers are willing and able to buy at any given price.  Of course, each of these things can only exist if people have the right to voluntarily exchange goods and services (and money).  If we did not have the right to offer (or not to offer) things for sale, there would be no supply in this sense of the word.  If we did not have the right to buy (or refuse to buy) what we want, there would be no demand.  Instead, we would have to have a command economy in which the government told producers what to make and told consumers what they could and could not buy.  This would be inefficient and would not work to get American consumers the goods and services that they want.

In this way, the freedom to voluntarily engage in economic exchange makes supply and demand (and, through them, our market economy) possible.