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Market Economy

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In political economics, a market economy is an economy where market forces set prices. The market economy is distinct from the planned economy, where central government authorities make numerous economic decisions. Capitalism is regarded as a market economy, whereas Communism is considered a planned economy. Most people find the market failures an unrestricted market economy can generate unacceptable. For instance, many people believe a minimum wage is necessary to eliminate utter poverty among the least skilled workers in a pure market economy. Consequently, no economy is strictly a pure market economy, although the laissez faire political viewpoint asserts that the perfectly free market economy would be optimal. Price fixing, restrictions on monopoly, even bans against illegal substances, are in theory all distortions that disrupt the functioning of the market economy by limiting individual choice.

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