What is Market Economy?

A market economy is a system in which the laws of supply and demand direct the production of goods and services. Supply includes natural resources, capital, and labor. Demand includes purchases by consumers, businesses, and the government. 

A market economy is an economy where private and public ownership of businesses is the norm. Laborers and workers work for these companies. Land, buildings, materials, resources, and money are owned by businesses and consumers.

These entities can conduct business with each other as they see necessary, and consumers can buy and sell at their discretion. Businesses sell their products and services at the highest price consumers will pay. Prices are also determined by competition. If one business sells something for $2.00, a business selling the same item might charge $1.95 to attract more shoppers.

This competition lets people and other businesses look for the lowest prices they can find. Workers promote their skills and services at the highest possible wages they can attract—employers seek to get the most skilled employees at the lowest possible wages.

Owners are free to produce, sell, and purchase goods and services in a competitive market. They only have two factors that are somewhat outside of their control. First, a buyer must be willing to pay the price they set for their goods or services. Second, the amount of capital they have is determined by the costs to produce and sell their goods and the price they can sell them. Most businesses have been created with the interests of the people that started them in mind. A market economy provides opportunity, gives people a chance to work for themselves, and lets them provide for their families in the manner that is best for them.

balance.com