Definition
- Market economy
- A market economy is one where economic decisions are decentralised, private individuals own resources, and businesses supply goods and services based on demand.
- Not to be confused with: Command economy
- A command economy is one where economic decisions are passed down from government authority and the government owns the resources.
Example
Can you think of something in the UK that the state provides alongside private firms?
Most of what a UK household buys, a phone contract, a sandwich, a haircut, is produced by private firms responding to what customers want. Yet the NHS provides most healthcare free at the point of use, state schools are paid for from taxes, and the government sets a minimum wage. The UK is mixed, sitting towards the market end with a large public sector.
Test yourself
What is the difference between market economy and command economy?
In one, buyers and sellers make the decisions; in the other, the government does.