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Financial Terms and Glossary

Market economy

Market Economy

A market economy is an economic system where the production and distribution of goods and services are driven by supply and demand, with minimal government intervention. Prices are determined by competition between businesses, and consumers make decisions based on their preferences and purchasing power. In a pure market economy, the government’s role is limited to enforcing laws and regulations to protect property rights and ensure fair competition.

Example

The United States operates primarily as a market economy, where businesses compete to sell goods and services to consumers, with prices determined by supply and demand.

Key points

• An economic system where supply and demand dictate the production and pricing of goods and services.

• Limited government intervention, with competition determining prices.

• Consumers make decisions based on preferences and purchasing power.

Quick Answers to Curious Questions

How are prices determined in a market economy?

Prices are determined by the forces of supply and demand, with competition between businesses setting the market price.

What role does the government play in a market economy?

The government’s role is limited to enforcing laws, protecting property rights, and ensuring fair competition.

Why is competition important in a market economy?

Competition encourages efficiency, innovation, and the provision of better products and services at lower prices.

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