Which term describes an economic system where economic decisions are made by individuals or the open market?

• A. Market Economy
• B. Mixed Economy
• C. Planned Economy
• D. Communism

Answer: (A)

In a market economy, economic decisions are driven by individuals and the open market. People decide what to buy and sell, and businesses decide what to produce based on prices that rise and fall with demand. These price signals guide resource allocation—suppliers shift to meet what consumers want, competition helps keep costs and innovation in check, and profits motivate efficiency. The government’s role is limited to enforcing laws and sometimes providing public goods, but the core driver of decisions is the market and private choice.

The other options differ in who controls decisions: a mixed economy includes some government intervention alongside market activity; a planned economy relies on a central authority to make most economic decisions; and communism refers to a system with extensive central planning and collective ownership, leaving far less room for individual market choices.