Market Economy

By: EconomyWatch   Date: 13 October 2010

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In a free market economy, the ‘invisible hand’ of supply-and-demand market forces defines what is produced, in what quantity, and at what price.

A market economy is a type of economic system in which the trading and exchange of goods, services and information takes place in a free market. A market economy may therefore also be known as a free market economy. The phrase is typically applied to countries or administrative regions that follow this approach.

Since free markets are governed by the law of supply and demand, the market itself will determine the price of goods and services, and this information will be made available to all participants. Businesses can decide which goods to produce and in what quantity, and consumers and businesses can decide what they want to purchase and at what price.

The opposite of a market economy is a planned economy, where the government decides what to produce, in what quantity, and to be sold at what price.

Mixed economies blend market and planned economies, meaning that the government will have some role in regulating the market, but all other activity will be driven by the decisions of buyers and sellers.

Since the government will always have some level of regulatory control, no country operates as a free market in the strict sense of the word, but we generally say that market economies are those in which governments attempt to intervene as little as possible, while mixed economies include elements of both capitalism and socialism.

The main characteristics of a market economy are its flexibility and decentralized nature. This type of economic system is more apt to cope up with ever-changing market trends, making it faster and more reactive.

The role of the national and state governments in the market economy is debatable, although it has been found that government interventions are sometimes necessary. In these cases, the government mainly deals with the formation and implementation of rules and regulations and ensures that monopolistic behavior does not obstruct competition in the marketplace.

Regardless of the government’s role, decisions made in a free market economy are primarily made by the ‘invisible hand’ of market forces - and not mandates issued by the government.


US Market Economy

US Market Economy is basically structured with the principles of individual freedom. US Economy is the world largest economy over the world. Know more on the US Market Economy.

Market Oriented Economy

Most of the economies over the world have been following the principles of market oriented economy system. Economies such as India and China have attained highest economic success through the use of market-oriented principles.

Emerging Market Economy
Emerging market economy possesses the essential characteristic of trade liberalization and open policy frameworks. Find the list of emerging market economies over the world.
Related Links

Socialist Market Economy

Free Market Economy

China Market Economy

Advantages of Market Economy

Global Market Economy

Germany Market Economy

Stock Market Economy

 

Mixed Economy |  Socialist Economy |  Capitalist Economy

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