market economy
Definition
A market economy is an economic system where decisions regarding investment, production, and distribution are guided by the interactions of individuals and businesses in a free market. Prices are determined by supply and demand without significant government intervention.
Analogy
Imagine a bustling farmer's market where each vendor sets prices based on how much people want what they're selling and how much of it they have. Just as vendors adjust their prices to compete and attract buyers, in a market economy, businesses adjust their operations based on consumer demand and competition.
Related terms
Supply and Demand: The economic model that determines the price of anything in a market economy, based on the quantity available and the desire (or demand) for that good or service.
Free Market: An economic system where the government imposes few or no restrictions and regulations on buyers and sellers, allowing them to freely conduct transactions.
Government Intervention: Actions taken by a government to affect the economy, which can range from regulations and taxes to subsidies and tariffs, contrasting with the principles of a pure market economy.
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