What is market economy? GROUP: B Short answer questions 4x5=20

A market economy is an economic system where the production, distribution, and pricing of goods and services are determined by the free interaction of supply and demand in the market, with minimal government intervention. Key features include:

• Private ownership: Individuals or firms own resources and businesses.
• Price mechanism: Prices adjust based on supply and demand, guiding production and consumption.
• Profit motive: Businesses operate to maximize profits.
• Consumer sovereignty: Consumers drive demand through their choices.
• Competition: Firms compete for resources and customers, improving efficiency.

In this system, the invisible hand (as described by Adam Smith) ensures that self-interest leads to the efficient allocation of resources. The equilibrium price and quantity (shown as E in the figure) are determined by the intersection of supply (S) and demand (D) curves.