<P> Market economies range from minimally regulated "free market" and laissez - faire systems--where state activity is restricted to providing public goods and services and safeguarding private ownership--to interventionist forms where the government plays an active role in correcting market failures and promoting social welfare . State - directed or dirigist economies are those where the state plays a directive role in guiding the overall development of the market through industrial policies or indicative planning--which guides but does not substitute the market for economic planning--a form sometimes referred to as a mixed economy . </P> <P> Market economies are contrasted with planned economies where investment and production decisions are embodied in an integrated economy - wide economic plan by a single organizational body that owns and operates the economy's means of production . </P> <P> Market economies rely upon a price system to signal market actors to adjust production and investment . Price formation relies on the interaction of supply and demand to reach or approximate an equilibrium where unit price for a particular good or service is at a point where the quantity demanded equals the quantity supplied . </P> <P> Governments can intervene by establishing price ceilings or price floors in specific markets (such as minimum wage laws in the labor market), or use fiscal policy to discourage certain consumer behavior or to address market externalities generated by certain transactions (Pigovian taxes). Different perspectives exist on the role of government in both regulating and guiding market economies and in addressing social inequalities produced by markets . Fundamentally a market economy requires that a price system affected by supply and demand exists as the primary mechanism for allocating resources irrespective of the level of regulation . </P>

In a market economy the market forces of and determine what prices will be