A market economy is an economic system in which goods and services are exchanged between buyers and sellers in a free market environment. In this type of economy, prices for these goods and services are determined by the forces of supply and demand. This means that firms and households make decisions about what to buy, sell, and produce based on their own individual preferences and budgets. Decisions are made without any intervention from the government or central authority. In a market economy, resources are allocated efficiently and competition leads to innovation and technological advancement. As a result, market economies tend to be more prosperous and able to deliver higher living standards than economies with other types of economic systems.