The theoretical basis for market economies was developed by classical economists such as Adam Smith, David Ricardo and Jean – Baptiste Say in the late 19th and early 20th centuries. These classically liberal free market advocates believed that protectionism and government intervention tended to lead to economic inefficiencies that actually made people worse off.
A market economy is an economic system in which economic decisions and the pricing of goods and services are guided solely by the aggregate interactions of a country’s individual citizens and businesses. There is little government intervention or central planning. This is the opposite of a centrally planned economy, in which government decisions drive most aspects of a country’s economic activity.
Market economies work on the assumption that forces such as supply and demand are the best determinants of aggregate well being.