What is a market economy?

Question

Explain it in the best way possible.
I'm trying to understand it more for a quiz that's tomorrow.

Answer 1

A market economy is one that works on the 'law' of 'supply and demand' for trading goods and money.

This means that companies and individuals produce goods for customers (the market) and try to sell them at the highest price they can get (the highest price the market will bear) while the customers try to pay the least amount for the highest quality goods and services.

The prices can change dynamically at any time and all the time, since different factors can affect what a company or individual can charge for goods, and other factors can affect what a customer will pay for goods.

For example, a company may charge more money when their costs go up, or if they have an exclusive product. A consumer may not be willing to pay more for a product because there are many different choices in the 'marketplace' (at their store or mailorder outlet) or because there is no immediate need for the product.

When all these things sort themselves out, and the seller has a product for sale and available at the price that a customer will buy, that is the 'market price' in a true market economy.