(a) What is a market economy?
(b) Highlight the features of a market economy.
Explanation
(a)A market economy is an economic system in which most of the means of production are owned and controlled by private individuals and in which the economic activity of the government is minimal. Also, in a market economy, resources are allocated through the price mechanism.
(b) The features of a market economy are:
(i) Firms are motivated by profit and households or individuals aim at getting maximum value for the money they spend.
(ii) The price mechanism is the key in the free market system. The answer to the questions what, how and for whom to produce lies in the price system.
(iii) There is consumer sovereignty. The wishes of the consumer ultimately determine what to produce, when to produce and at what price to produce.
(iv) Resources are efficiently allocated.
(v) There is free competition among economic units.
(vi) There exists private ownership of property.