What is a Market Economy?

1. What is a market economy? 
A market economy is an economy where the free flow of goods and services 
facilitates and protects, both producers and consumers. 
2. What are the characteristics of a market economy? 
The characteristics of a market economy include: 
● 
The economic system relies on demand and supply. 
● 
The quantity produced of a good or service is determined by the 
demand and supply. 
● 
There are four types of economies, namely, traditional, command, 
market, and mixed economies. 
● 
Government interventions include price-fixing, licensing, quotas, and 
industrial subsidies. 
3. Who makes the decisions in a market economy? 
In a market economy, the decisions are made by the producers and consumers. 
The government intervenes minimally in the market and does not make any 
decisions about what is produced or how it is produced. 
4. What are the types of market economies? 
There are four types of market economies, which are: 
● 
Traditional market economy: This is where the government intervenes 
minimally in the market and production is based on what the producers 
think the consumers want. 

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● 
Command market economy: This is where the government controls all 
aspects of the economy and decides what is produced, how it is 
produced, and what the prices will be. 
● 
Market economy: This is where the government intervenes minimally in 
the market and allows the free flow of goods and services based on the 
interaction of demand and supply. 
● 
Mixed market economy: This is a combination of a traditional market 
economy and a command market economy, where the government 
intervenes in different areas of the economy. 
5. What are the pros and cons of a market economy? 
The benefits of a market economy include increased efficiency, production, and 
innovation. The disadvantages of a market economy include monopolies, no 
government intervention, poor working conditions, and unemployment.