Answer:
Businesses decide which products to sell and which prices to charge.
Step-by-step explanation:
A market economy is an economic system in which economic choices and the price of products and services are governed by interactions between individual individuals and enterprises in a country. There may be some government interference or central planning, but this word typically refers to a more market-oriented economy in general.
- The majority of economic decisions in a market economy are made through voluntary transactions that follow the rules of supply and demand.
- A market economy allows entrepreneurs to pursue profit by producing outputs that are more value than the inputs they use, as well as the freedom to fail and go out of business if they do not.
- Economists generally agree that market-oriented economies provide superior economic outcomes, but they disagree on the exact balance of markets and central planning that is optimum for a country's long-term well-being.
Understanding Market Economies
Classical economists such as Adam Smith, David Ricardo, and Jean-Baptiste Say provided the theoretical foundation for market economies. The "invisible hand" of the profit motive and market incentives, according to these classically liberal free market proponents, often steered economic decisions along more productive and efficient courses than government economic planning. They felt that government action frequently resulted in economic inefficiencies that harmed people.
Market Theory
Market economies use supply and demand dynamics to establish the proper prices and quantities for the majority of commodities and services in the economy. Entrepreneurs gather production inputs (land, labor, and capital) and combine them with workers and financial backers to generate goods and services for customers or other firms to purchase. Buyers and sellers willingly agree on the parameters of these transactions based on consumer preferences for specific commodities and the income that companies expect to make on their investments. Entrepreneurs allocate resources across multiple companies and production processes based on the profits they aim to generate by generating output that their consumers value more than what the entrepreneurs spent for the inputs. Entrepreneurs who succeed are rewarded with revenues that may be reinvested in future ventures, while those who fail must either learn to improve through time or go out of business.
Modern Market Economies
Every contemporary economy sits somewhere along a spectrum ranging from pure market to highly planned. The majority of industrialized economies are technically mixed economies because they combine open markets with some government intervention. However, they are frequently referred to as having market economies since they enable market forces to drive the great bulk of activity, with government intervention being limited to providing stability. Some government interventions, such as price fixing, licensing, quotas, and industry subsidies, may still occur in market economies. Market economies are most typically characterized by government production of public goods, often as a government monopoly. Market economies, on the other hand, are characterized by decentralized economic decision making by buyers and sellers doing regular business. Market economies are defined in particular by having functional markets for corporate control that allow for the transfer and rearrangement of economic means of production among entrepreneurs. Although the market economy is obviously the most popular system, there is much disagreement on the level of government involvement that is deemed desirable for successful economic operations. Economists generally believe that more market-oriented economies will be more successful in terms of generating wealth, economic growth, and rising living standards, but they frequently disagree on the precise scope, scale, and specific roles for government intervention that are required to provide the fundamental legal and institutional framework that markets may require in order to function well.