What characterizes a market economy?

A market economy is characterized primarily by decisions made based on supply and demand with minimal government intervention. In this system, prices are determined by the interaction of consumers and producers in the marketplace. When demand for a product increases, prices tend to rise, incentivizing producers to supply more of the product. Conversely, if demand decreases, prices may fall, prompting producers to reduce supply.

This self-regulating nature of the market allows for efficient allocation of resources as businesses and consumers respond to price signals. Minimal government intervention means that the market largely dictates production, consumption, and pricing decisions, fostering an environment where competition can thrive and innovation can occur.

In contrast, heavy regulation by the government may disrupt this equilibrium by imposing artificial price controls or limiting the choices available to consumers. The absence of a pricing system, as mentioned in one of the choices, is not characteristic of a market economy; pricing is fundamental to how transactions are made. Lastly, a focus on redistributing wealth is more aligned with planned or command economies, where the government plays a significant role in distributing resources rather than leaving it to market forces.