key term - Market economy

Definition

A market economy is an economic system where decisions regarding investment, production, and distribution are guided by the interactions of individuals and businesses in a free market. Prices are determined by supply and demand without significant government intervention.

Related terms

Supply and Demand:

The economic model that determines the price of anything in a market economy, based on the quantity available and the desire (or demand) for that good or service.

Free Market:

An economic system where the government imposes few or no restrictions and regulations on buyers and sellers, allowing them to freely conduct transactions.

Government Intervention: Actions taken by a government to affect the economy, which can range from regulations and taxes to subsidies and tariffs, contrasting with the principles of a pure market economy.