Market economy can be defined as the ideal situation of the economy and the market where the decisions regarding the economy and the pricing of the goods, products and market entities is solely taken by the citizens of the economy with the proper interactions with the price setting authorities and the power centers. In a market economy the pricing strategies are defined and implemented by the citizens and the business entities and there is no or very little intervention of the government in the market. The market economy is absolutely different from the centralized market where the pricing decisions are taken by the government and the pricing strategies are set by the government of the country.
The major assumption while implementing market economies system within the country is that the market grows and performs well if it is driven on the basic rule of supply and demand. This theory focuses on the fact that supply and demand determined the best that what is better for the economy of the nation. The engagement of government for designing pricing strategies, analyzing supply and demand and implementing pricing rules is rare in these types of economies. This means that the government cannot take part in activities such as price fixing, quota licensing and issuing subsidiaries to the industry.
Most of the nations around the world work on the mixed economies that are a balanced combination of market economies and government centered economies where both the citizens and the government collectively decide what is better for the economy.
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