Market economy
Type of economic system / From Wikipedia, the free encyclopedia
A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand. The major characteristic of a market economy is the existence of factor markets that play a dominant role in the allocation of capital and the factors of production.[1][2]
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Market economies range from minimally regulated free-market and laissez-faire systems where state activity is restricted to providing public goods and services and safeguarding private ownership,[3] to interventionist forms where the government plays an active role in correcting market failures and promoting social welfare, as seen in some mixed economies. Since global politics is largely if not universally organized into separate nation states, there are few examples of stateless forms of the market economy; indeed, even in laissez-faire systems, the state plays a fundamental role in protecting the property upon which market economies depend, and sometimes the wealth accumulated by an economically dominant class. In addition to the state’s role in maintaining market economies by protecting property and wealth, state intervention can happen at the production, distribution, trade and consumption areas in the economy. The distribution of basic need services and goods like health care may be entirely regulated by an egalitarian public health care policy (while having the production provided by private enterprise), effectively eliminating the forces of supply and demand.
State-directed or dirigist economies are those where the state plays a directive role in guiding the overall development of the market through industrial policies or indicative planning—which guides yet does not substitute the market for economic planning—a form sometimes referred to as a mixed economy.[4][5]
Market economies are contrasted with planned economies where investment and production decisions are embodied in an integrated economy-wide economic plan. In a centrally planned economy, economic planning is the principal allocation mechanism between firms rather than markets, with the economy's means of production being owned and operated by a single organizational body.