Market Economy
Definition
A market economy is an economic system in which decisions regarding production, distribution, and pricing are based on supply and demand. It operates through voluntary exchange between buyers and sellers.
Analogy
Think of a farmer's market where vendors sell their products directly to customers. The prices are determined by how much people are willing to pay for each item. In a market economy, just like at a farmer's market, prices are determined by consumers' demand and producers' supply.
Related terms
Supply and Demand: This term refers to the relationship between how much of a product is available (supply) versus how much people want it (demand). Prices adjust based on this relationship.
Competition: In a market economy, competition exists among businesses as they strive to attract customers with better products or lower prices.
Private Property Rights: These rights give individuals or businesses ownership over resources such as land or capital in order to use them for production or trade.
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