Some Key Free Market Assumptions

1. Consumers possess perfect information – they know all of the options, prices, and quality

2. Perfect competition exists – there are many producers competing with each other, and no singly supplier is a large enough supplier to significantly affect the price. Prices set by supply & demand.

3. Mobility of factors – capital, labor, and consumers are free to go elsewhere if the don’t like conditions

4. Firms have the single minded goal of maximizing profits

5. Consumers have the goal of maximizing utility by pursuing the most satisfying products at the best available price.