Market Economy

Loading the player...

What is a 'Market Economy'

A market economy is 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.

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.

RELATED TERMS
  1. Centrally Planned Economy

    An economic system in which economic decisions are made by the ...
  2. Economy

    Economy is the large set of inter-related economic production ...
  3. Capitalism

    A system of economics based on the private ownership of capital ...
  4. Economic Conditions

    The state of the economy in a country or region. Economic conditions ...
  5. Sterilized Intervention

    The purchase or sale of foreign currency by a central bank to ...
  6. Dirty Float

    A system of floating exchange rates in which the government or ...
Related Articles
  1. Trading

    How To Profit From Interventions In The Forex Market

    The forex market can be extremely profitable. Learn how to spot an intervention and trade when it's occurring.
  2. Markets

    Explaining Limited Government

    Limited government is a political viewpoint that favors few, if any, government controls on individuals and the economy.
  3. Trading

    Taking Advantage Of Central Bank Interventions

    These interventions provide great opportunities for investors and traders to seize entries into longer-term trends.
  4. Markets

    These Will Be the World's Top Economies in 2020

    Discover the current economic forces that are anticipated to significantly shift the landscape of the world's most powerful economies over the next decade.
  5. Retirement

    Conduct A Financial Intervention

    Find out what you can do to help someone who is finanically out of control.
  6. Markets

    Which Countries Will Drive Global Growth in 2016?

    Given the volatility that has already shaken the global economy, the world's largest economies will be leaned on to stimulate growth in 2016
  7. Markets

    What's a Command Economy?

    A command economy is one where the government controls the economy, acting as the central planner, dictating production quotas and distribution levels, and setting prices. Such economies exist ...
  8. Personal Finance

    The Government And Risk: A Love-Hate Relationship

    Though the U.S. government can help its citizens by subsidizing risky loans, the costs always come back to the taxpayers.
  9. Markets

    The Long View on China's Recent Stock Meltdown

    China's bull market was fueled by a widespread belief that the government’s economic reforms were a success and a sign that President Xi Jinping’s dream of a prosperous China was becoming a reality. ...
  10. Trading

    3 Factors That Drive The U.S. Dollar

    We look at three important factors that affect U.S. dollar value, and how to determine when it's the right time to buy currency.
RELATED FAQS
  1. What's the difference between a market economy and a command economy?

    Set by supply and demand, a market economy operates through a price system; in a command economy, governments control the ... Read Answer >>
  2. What is demand-side economics?

    Learn the basic theory of demand side economics, which emphasizes the importance of aggregate demand and supports government ... Read Answer >>
  3. What impact does economics have on government policy?

    Learn about the impact of economic conditions on government policy and understand how governments engineer economic conditions ... Read Answer >>
  4. Is the United States considered a market economy or a mixed economy?

    Find out why the United States is considered a mixed economy and how nearly every economic transaction is influenced by public ... Read Answer >>
  5. What are some examples of free market economies?

    Learn which of the world's economies best resemble free market economies, marked by free trade, low government involvement ... Read Answer >>
  6. What role does the government play in capitalism?

    Take a deeper look at the role of government in a capitalist economic system and about competing ideas about the proper amount ... Read Answer >>
Hot Definitions
  1. Put Option

    An option contract giving the owner the right, but not the obligation, to sell a specified amount of an underlying security ...
  2. Frexit

    Frexit – short for "French exit" – is a French spinoff of the term Brexit, which emerged when the United Kingdom voted to ...
  3. AAA

    The highest possible rating assigned to the bonds of an issuer by credit rating agencies. An issuer that is rated AAA has ...
  4. GBP

    The abbreviation for the British pound sterling, the official currency of the United Kingdom, the British Overseas Territories ...
  5. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  6. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
Trading Center