Chapter 7, Problem 12AA

To determine

To evaluate: The basis of activity that is mostly followed in a market economy.

Explanation of Solution

A capitalist economy, also commonly known as a free market economy is one in which goods are bought and sold and prices are set by the free market, with little influence from outside government. The capitalist system is founded upon a free economy.

Limited government intervening is one of the significant features of a free economy. It is the buyers and sellers make most the economic decision. In other words the economic decisions are regulated by the demand and supply laws.

Supplying and demand are vital for the economy, as they affect the rate of consumer product and services in the economy. The relationship between supply and demand averages out at some stage in the future, according to market economy theory; this point is called the equilibrium level.

Economics Concept Introduction

Introduction: A market economy is an arrangement in which decisions regarding consumption, distribution, pricing and production of commodities and services are drive by the interactions of business and individual. Means government has no role to play in decision making regarding economic activity.