Market Economy


DEFINITION of '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.


Loading the player...

BREAKING DOWN 'Market Economy'

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.

  1. Laissez Faire

    An economic theory from the 18th century that is strongly opposed ...
  2. Fiscal Policy

    Government spending policies that influence macroeconomic conditions. ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects ...
  4. Plunge Protection Team - PPT

    A colloquial name given to the Working Group on Financial Markets. ...
  5. Invisible Hand

    A term coined by economist Adam Smith in his 1776 book "An Inquiry ...
  6. Price Fixing

    Establishing the price of a product or service, rather than allowing ...
Related Articles
  1. Economics

    Understanding a Free Market Economy

    Why would we want a free market economy?
  2. Economics

    Market Economy

    In a market economy, economic decisions and prices are determined by market forces rather than by central planning.
  3. Personal Finance

    State-Run Economies: From Public To Private

    Find out how former Iron Curtain countries used private enterprise to join the world financial markets.
  4. Economics

    What Is An Emerging Market Economy?

    Emerging markets provide new investment opportunities, but there are risks - both to residents and foreign investors.
  5. Economics

    What Is The World Trade Organization?

    The WTO sets the global rules of trade. But what exactly does it do and why do so many oppose it?
  6. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  7. Investing

    What a Family Tradition Taught Me About Investing

    We share some lessons from friends and family on saving money and planning for retirement.
  8. Investing Basics

    Why Interest Rates Affect Everyone

    Learn why interest rates are one of the most important economic variables and how every individual and business is affected by rate changes.
  9. Investing

    Where the Price is Right for Dividends

    There are two broad schools of thought for equity income investing: The first pays the highest dividend yields and the second focuses on healthy yields.
  10. Economics

    Investing Opportunities as Central Banks Diverge

    After the Paris attacks investors are focusing on central bank policy and its potential for divergence: tightened by the Fed while the ECB pursues easing.
  1. Should a small business test the substitution effect on its products before launch?

    Small businesses may evaluate the products and services offered by industry competitors to see if the substitution effect ... Read Full Answer >>
  2. Is there any way to reverse the law of diminishing marginal returns?

    As production capacity continues to increase, a point comes when further increases in capacity no longer provide significant ... Read Full Answer >>
  3. Does the law of diminishing marginal returns only apply to labor?

    The law of diminishing returns is used by economists to describe a phenomenon occurring whenever additional production capacity ... Read Full Answer >>
  4. Is demand or supply more important to the economy?

    Supply and demand are both key to economic activity. The two influence each other and impact prices of consumer goods and ... Read Full Answer >>
  5. Do supply and demand always cancel each other out?

    Supply and demand have an economic relationship that impacts pricing within a market economy. When demand increases, supply ... Read Full Answer >>
  6. What is the history of the market economy?

    The free-market system of voluntary economic trades, or the market economy, has existed in different stages ever since human ... Read Full Answer >>
  7. How does the Circular Flow Of Income model work?

    Economists use circular flow of income models as heuristic devices to represent how currency travels from one part of a market ... Read Full Answer >>
  8. Who determines interest rates?

    In countries using a centralized banking model, interest rates are determined by the central bank. In the first step of ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  2. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
  3. Turkey

    Slang for an investment that yields disappointing results or turns out worse than expected. Failed business deals, securities ...
  4. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  5. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  6. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
Trading Center