Question

What is the nature of goods and services that give rise to the free market exchange as the optimal institutional arrangement?

Answer 1

Free market is a system wherein the prices of goods and services are determined by the supply and demand of the market forces. The nature of good and services is such that it enables a voluntary agreement between two people or groups of people. The two exchange economic goods, either tangible commodities or non-tangible services. Each expects to gain from it as both parties undertake the exchange. Goods are valued based on requirement and bargaining skill. The goods and services are ultimately valued based on the equilibrium demand and supply for it. Thus the nature of the goods and services should be such that it is easier to trade, it benefits both the parties and it increases utility when it is acquired or optimal level.