Market Economy (Elementary)
A market economy is an economic system in which the production and distribution of goods and services are determined by the free market, rather than by government intervention. In a market economy, the decisions of what to produce, how to produce, and how much to produce are made by the market forces of supply and demand. This type of economy is also known as a free market economy, a capitalist economy, or a laissez-faire economy.
History of the Term
The term “market economy” was first used in the 18th century by Adam Smith, the father of modern economics. Smith argued that the free market was the most efficient way to allocate resources and produce goods and services. He believed that the free market would lead to the most efficient use of resources and the most equitable distribution of wealth. Since then, the concept of a market economy has been widely accepted and adopted by many countries around the world.
Comparison Table
| Market Economy | Command Economy |
|---|---|
| Decisions are made by the market forces of supply and demand | Decisions are made by the government |
| Prices are determined by the market | Prices are determined by the government |
| Competition is encouraged | Competition is discouraged |
| Private ownership is encouraged | Private ownership is discouraged |
Summary
A market economy is an economic system in which the production and distribution of goods and services are determined by the free market, rather than by government intervention. In a market economy, the decisions of what to produce, how to produce, and how much to produce are made by the market forces of supply and demand. For more information about this term, you can visit websites such as Investopedia, The Balance, and The Economist.
See Also
- Command Economy
- Free Market Economy
- Capitalist Economy
- Laissez-Faire Economy
- Supply and Demand
- Price Determination
- Competition
- Private Ownership
- Adam Smith
- Modern Economics
