The (Free) Market System (Cambridge (CIE) O Level Economics)
Revision Note
Definition and Characteristics
A market economy is an economy that has no government intervention in the allocation of resources and distribution of goods/services
This is also called a free market economy
There is no purely free market economy in the world but some countries have less government intervention than others
An economy can be considered to be a market, mixed or planned economy
The type of economy is determined by how the three economic questions are answered (see: 2.2.1 The (Free) Market System).
This ultimately determines the amount of government intervention in an economy
North Korea is a planned economy
The United States, Japan and Singapore are mixed economies but have less government intervention than Norway, Germany or China
Characteristics of a Market System
Characteristic | Explanation |
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Property Ownership |
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Freedom of Choice |
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Self Interest |
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Limited Government Intervention |
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Price Mechanism |
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Advantages and Disadvantages of a Market System
Each economic system has numerous advantages and disadvantages
The Advantages and Disadvantages of Market Economies
Advantages | Disadvantages |
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Examiner Tip
Multiple choice questions often explore your understanding of the different characteristics of market and mixed economic systems.
When answering structured questions that ask you to discuss/explain the difference between two systems, ensure that the disadvantages of one system are not always just the opposite points to the advantages of the other system. Develop some unique points for each system.
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