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. 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

    What Is An Emerging Market Economy?

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

    Understanding a Free Market Economy

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

    Market Economy

    In a market economy, economic decisions and prices are determined by market forces rather than by central planning.
  4. 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.
  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. Term

    What Is Contractionary Policy?

    A contractionary policy is a macroeconomic tool used to slow down an economy.
  7. Fundamental Analysis

    4 Challenges China Faces According to PIMCO

    Get the latest thoughts from Luke Spajic, executive vice president and portfolio manager in Singapore for PIMCO, on challenges facing China's economy.
  8. Savings

    Do Big Soccer Tournaments Boost Market Performance?

    See why the conventional wisdom about the World Cup — that it boosts economic activity and helps local stock markets — is probably wrong.
  9. Economics

    8 Harmful Side Effects of Continued European Quantitative Easing (Q.E.)

    Read about eight harmful side effects of European Central Bank's decision to boost its quantitative easing (QE) program and push interest rates even lower.
  10. Economics

    Do the Olympics Boost Market Performance?

    Learn about the economics of the Olympics, and why estimates about stock market boosts for the host country are probably incorrect.
RELATED FAQS
  1. Should a small business test the substitution effect on its products before launch?

    Explore the substitution effect and find out how small businesses may evaluate how this principle impacts their own products. ... Read Answer >>
  2. Does the law of diminishing marginal returns only apply to labor?

    Learn more about how the law of diminishing returns is used by economists and businesses. Find out more about the laws of ... Read Answer >>
  3. Is there any way to reverse the law of diminishing marginal returns?

    Learn more about how consumer spending, supply and demand impact production decisions. Find out more about the law of diminishing ... Read Answer >>
  4. Is demand or supply more important to the economy?

    Learn more about the impact of supply and demand in an economy. Find out why companies study supply and demand as part of ... Read Answer >>
  5. Do supply and demand always cancel each other out?

    Learn more about supply and demand and how these factors drive economic activity. Find out more about demand elasticity and ... Read Answer >>
  6. What is the history of the market economy?

    Take a quick tour through the history of the market economy -- the system of voluntary economic exchanges guided by private ... Read Answer >>
Hot Definitions
  1. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  2. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
  3. Generally Accepted Accounting Principles - GAAP

    The common set of accounting principles, standards and procedures that companies use to compile their financial statements. ...
  4. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  5. Call Option

    An agreement that gives an investor the right (but not the obligation) to buy a stock, bond, commodity, or other instrument ...
  6. Economies Of Scale

    Economies of scale is the cost advantage that arises with increased output of a product. Economies of scale arise because ...
Trading Center