Final answer:
An economic system where production and consumption choices are made through voluntary exchange in markets is called a market economy or capitalism. It emphasizes economic freedom, private ownership, and private decision-making with minimal government intervention.
Step-by-step explanation:
Economic Systems and Market Economy
An economic system is the structure by which a society manages its resources, including the production and distribution of goods and services. The system in which decisions on production and consumption are based on voluntary exchange in markets is best referred to as a market economy. Also known as capitalism, the market economy facilitates economic freedom and is founded upon the rights to private property where private individuals or businesses own resources and are responsible for the decisions on their use. In a market economy, goods and services are allocated and prices are determined through supply and demand within the marketplace.
Private property rights, voluntary exchange, and competition are the linchpins of a market economy. This system is characterized by a minimal government role, where the state's primary function is to enforce private property rights and maintain the rule of law. Markets, like those in the cell phone industry, epitomize efficiency in matching buyers and sellers and in facilitating the production and distribution of goods. However, issues can arise when private exchanges impact third parties who are not directly involved in the transaction.
In conclusion, a market economy is designed to operate with a high degree of autonomy for individuals and businesses, relying heavily on market forces to make economic decisions. This contrasts with a command or planned economy, where the government plays a central role in economic planning and decision-making.