An economy is the central environment where individuals buy, sell, or trade goods and services. Many types of economies exist, such as local, market, and command, among others in between. The different types of market economy include market oriented, emerging, and free market. Market-oriented economies are either just beginning or mixed with a central planner; emerging markets tend to be opening up to free market principles; and free market economies are established economies with little or no government intervention. Most kinds of market economy will go through these phases at some time.
Market-oriented economies tend to start once the local economy begins to grow. For example, a barter system, or one where a communal economy exists, may move to a market-oriented economy. These types of market economy also occur where a strong central government exists. Even though a market economy system is in place, the government or other central agent controls the resources, both in distribution and in use. Market principles are still in play, although individuals do not always — if ever — have the ability to act in their own self-interests for economic reasons.
Emerging market economies begin to organize in a larger fashion. Many young countries can have several small, local markets that engage in economic trades. An emerging market economy begins when all of these smaller markets combine and the nation begins to grow and expand its opportunities. The protection of private property is typically a central piece of an emerging market economy. Here, individuals are able to keep the rewards they earn from economic activities, giving them the ability to better themselves and their families.
Free markets are the ultimate situation among the different types of market economy. In this stage, individuals and the nation in which the economy exists act in their own self-interests, which are key tenets for expanding internationally. The nation typically set up standards for trade — both imports and exports — with other countries in order to expand. Through these actions, the economy continues to grow and offers low-cost goods and services. Though the top level of market economies, there is still room for growth and expansion.
Market economies typically fall under the principles of the business cycle. These stages are growth, peak, contraction, and trough. Each economy moves through these stages at some point. The length and frequency, however, depends on the types of market economy in the nation.