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

Market forces refer to the collective effect of all the decisions made by individual participants in the economy - such as consumers and businesses - according to their free will.

A market economy is considered the opposite of a planned economy, where a central authority, such as the government or military, controls major aspects of the economy.

In reality, there are no pure market economies in the world, and few pure planned economies.

Most countries, such as western democracies, are mixed economies. This means they operate partly according to random market forces, and partly according to centrally planned rules and decisions.

While theory states that a pure market economy uses resources and labor most efficiently, in reality, democracies have additional goals besides efficiency. These may include minimum levels of safety, education, opportunity or health. To accomplish these goals, they introduce some centrally planned rules and regulations to guide the pure market forces.

For example, the US uses centrally planned forces such as food safety regulation, anti-discrimination laws, public education and social security in order to distribute certain benefits more evenly than market forces would. 

 

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