Secondly, the free market approach is efficient at allocating resources into various uses. This efficiency is achieved through the price system. Changes in prices act as signals to buyers and sellers and direct their behavior. Third, the competition among sellers ingrained in a free market system provides for lower prices and better quality goods. However, this is only true in a model free market. Markets are not always perfect in their operation. Buyers and sellers often don't have proper information to make informed decisions and competition may be controlled by a few large companies. Also, the free market system may not provide certain services that society considers important and there may be such huge gaps in income distribution that many of the underprivileged cannot compete and earn very little in terms of income. Free markets are not immune to fluctuations in the level of economic activity and as a result of these market imperfections, the government intervenes and tries to maintain an order of balance in the economy. A free market system is one in which private ownership and individual decision-making is stressed and the government has little or no involvement. The advantages of this market system were first introduced by Adam Smith. He said that a free market system would channel selfish, egoistic motives toward the betterment of society. He also stated that an "invisible hand" or competition would make or break a business. And that government intervention would only have negative consequences on society. He said that there was no need to plan an economy and that if people were free to pursue their own interests the sum of their individual actions would automatically work for the betterment of society. In this economic system, the government's role was reduced to only protecting the country against foreign enemies, ensuring competition, maintaining law and order, and protecting individual property rights.
