Market Economy (redirected from Free market economy)

Market Economy

A social and economic system in which prices are fixed by the law of supply and demand rather than by a government or other body. In its pure form, a market economy is an economy absent of government subsidies, incentives, or regulations. A market economy contrasts with both a planned economy and a mixed economy. No economy is a complete market economy: most countries claiming to have market economies in fact have a market economy combined with greater or lesser government regulation, sometimes called a social market. Proponents of a market economy argue that it is more efficient than any alternatives, promotes fair competition between its participants, and rewards skill and hard work. Critics allege that a market economy perpetuates class differences and rewards ruthlessness over actual labor. Milton Friedman, Friedrich Hayek, and Ludwig von Mises were three major 20th-century proponents of the market economy. See also: Capitalism, socialism, John Maynard Keynes.

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Market Economy

What Does Market Economy Mean?

An economy 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, with 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.

Investopedia explains 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 subsidization. Although most developed nations today have mixed economies, they are referred to as market economies because they allow market forces to drive most of their activities, with government intervening only to provide stability. Although the market economy is clearly the system of choice in today's global marketplace, discussions persist about the proper balance of free market principles and government intervention.

Related Terms:
• Common Stock
• Corporate Bonds
• Gross Domestic Product—GDP
• Inflation
• Law of Demand