200425 Lecture Notes - Lecture 4: Planned Economy, Price Fixing, Mixed Economy
30 Mar 2019
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Document Summary
A market economy is an economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country"s individual citizens and businesses. There is little government intervention or central planning. This is the opposite of a centrally planned economy, in which government decisions drive most aspects of a country"s economic activity. Market economies work on the assumption that forces like supply and demand are the best determinants of aggregate well-being. Strict adherents to the theory rarely engage in government interventions, such as price fixing, license quotas and industry subsidies. Theoretical proponents argue that central planners could not possibly gather and analyze enough information to make the optimal economic decision for all participants. Instead, each rational person with perfect information and free will should be able to maximize his/her well being given the set of options with which he is presented.
