| market economy n. An economy that operates by voluntary exchange in a free market and is not planned or controlled by a central authority; a capitalistic economy. |
An economy in which the greater part of production, distribution, and exchange is controlled by individuals and privately owned corporations rather than by the government, and in which government interference in the market is minimal. Although a total market economy is probably only theoretically possible (because it would exclude taxation and regulation of any kind), capitalist economies approximate it and socialist economies are antithetical to it (see capitalism and socialism). Market economies are also called free economies, free markets, or free enterprise systems.
Market Economy
An economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country's citizens and businesses and there is little government intervention or central planning. This is the opposite of a centrally planned economy, in which government decisions drive most aspects of a country's economic activity.
Investopedia Commentary
Market economies work on the assumption that market forces, such as supply and demand, are the best determinants of what is right for a nation's well being. These economies rarely engage in government interventions such as price fixing, license quotas and industry subsidizations.
While most developed nations today could be classified as having mixed economies, they are often said to have market economies because they allow market forces to drive most of their activities, typically engaging in government intervention only to the extent that it is needed to provide stability. Although the market economy is clearly the system of choice in today's global marketplace, there is significant debate regarding the amount of government intervention considered optimal for efficient economic operations.
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Economics Basics Tutorial
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See also: Dismal Science, Emerging Market Economy, Fiscal Policy, Free Market, Invisible Hand, Keynesian Economics, Laissez Faire, Price Fixing, Subsidy