exchange

A market economy is an economy in which decisions regarding investment, production, and distribution are based on supply and demand, and prices of goods and services are determined in a free price system. The major defining characteristic of a market economy is that investment decisions and the allocation of producer goods are mainly made by negotiation through markets. This is contrasted with a planned economy, where investment and production decisions are embodied in a plan of producti Market economies can range from hypothetical laissez-faire and free market variants to regulated markets and interventionist variants. In reality market economies do not exist in pure form, since societies and governments regulate them to varying degrees. Different perspectives exist as to how strong a role the government should have in both guiding the market economy and addressing the inequalities the market produces. Most existing market economies include a degree of economic planning or state-directed activity, and are thus classified as mixed economies. The term free-market economy is sometimes used synonymously with market economy, but it may also refer to laissez-faire or free-market anarchism. Market economies do not logically presuppose the existence of private property in the means of production. A market economy can consist of various types of cooperatives, collectives or autonomous state agencies that acquire and exchange capital goods in capital markets, utilizing a free price system to allocate capital goods and labor. There are many variations of market socialism, some of which involve employee-owned enterprises based on self-management; as well as models that involve public ownership of the means of production where capital goods are allocated through markets.