Market economy a market economy

Market economy
A market economy is an economic system in which the decisions regarding investment, production and distribution to the consumers are guided by the price signals created by the forces of supply and demand, where all suppliers and consumers are unimpeded by price controls or restrictions on contract freedom. The major characteristic of a market economy is the existence of factor markets that play a dominant role in the allocation of capital and the factors of production.^[1][2]
Market economies range from minimally regulated free-market and laissez-faire systems where state activity is restricted to providing public goods and services and safeguarding private ownership,^[3] to interventionist forms where the government plays an active role in serving special interests and promoting social welfare. State intervention can happen at the production, distribution, trade and consumption areas in the economy. The distribution of basic need services and goods like health care may be entirely regulated by an egalitarian public health care policy, while at the same time having the production provided by private enterprise, effectively eliminating the forces of supply and demand. These economies are not market economies and display market failure of a market economy for basic needs and anti-competitive practices with respect to individual private customers.
State-directed or dirigist economies are those where the state plays a directive role in guiding the overall development of the market through industrial policies or indicative planning—which guides yet does not substitute the market for economic planning—a form sometimes referred to as a mixed economy.^[4][5]
Market economies are contrasted with planned economies where investment and production decisions are embodied in an integrated economy-wide economic plan.

Advantages of a Market Economy

There are four types of economies: traditional, command, market, and mixed (a combination of a market economy and a planned economy). A market economy, also known as a free market or free enterprise economy, is a system in which economic decisions, such as the prices of goods and services, are determined by supply and demand. Command economies, on the other hand, utilize central planning by a central authority to make all economic decisions.

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  A market economy is an economy in which supply and demand drive economic decisions, such as the production of goods and services, investments, pricing, and distribution.
  
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  A market economy promotes free competition among market participants.
  
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  Notable benefits of a market economy are increased efficiency, production, and innovation.
  

Unlike other types of economies, a market economy increases the efficiency of businesses. The government is limited in how it regulates transactions within a market economy and most rules it enacts are to protect consumers, the environment, market participants, and national security.
The limited role of governments promotes increased efficiency and free and increased competition. With the existence of competition, a business tends to do whatever is necessary to lower its costs and achieve a higher number of sales to increase profits.
Because businesses compete with one another, they must determine ways in which to have a competitive advantage so that they can capture a larger market share for their product or service. This leads them to figure out how to reduce costs, improve their product, and so on in order to capture that extra market share.