A market economy is an economic system where the decisions regarding investment, production, and distribution to the consumers are guided by the price signals created by the forces of supply and demand. In a market economy, the interactions of a countrys individual citizens and businesses determine the pricing of goods and services. The following are some key characteristics of a market economy:

• Supply and demand: The forces of supply and demand determine the appropriate prices and quantities for most goods and services in the economy.

• Entrepreneurial freedom: A market economy gives entrepreneurs the freedom to pursue profit by creating outputs that are more valuable than the inputs they use up, and free to fail and go out of business if they do not.

• Decentralized economic decision making: Market economies are characterized by decentralized economic decision making by buyers and sellers transacting everyday business.

• Limited government control or intervention: A market economy encourages the production and selling of products and services with limited government control or intervention.

While market economies may still engage in some government interventions, such as price-fixing, licensing, quotas, and industrial subsidies, they are often said to have market economies because they allow market forces to drive the vast majority of activities.