Market Economy

A market economy is one that’s run by the aggregate of individual consumers (and firms) looking to increase their own utility, rather than being planned out (i.e. a “planned economy”). Call it “market forces,” or the “invisible hand." These are the things that make a market economy a market economy.

Most countries have mixed economies, with some market economy parts and some planned economy parts. Even if you feel like you’re living in a market economy, you’re probably living in a mixed economy. Real life’s not an Ayn Rand novel. In the U.S., things like firefighters, social security, and public education are all aspects of our economy that are planned, even if most of the rest of our consumer lives are mostly a market economy.

Even if pure market economies aren’t really a thing in the real world, they’re often an underlying assumption in some basic economic models, so it’s good to understand that the market forces of self-interest, supply, and demand...are what make a market economy tick.