In which type of economy do decisions on production and consumption rely on voluntary market exchanges?

In a market economy, production and consumption decisions are determined by voluntary exchanges in the marketplace. In this system, buyers and sellers interact freely, negotiating prices and quantities based on supply and demand. Individuals and businesses have the autonomy to make choices regarding what to produce, how much to produce, and what to purchase, leading to a decentralized form of economic management.

This economy promotes innovation and accommodates consumer preferences, as businesses are incentivized to meet the demands of the consumers to remain competitive. The responsiveness of the market to changes in consumer desires and available resources is a characteristic feature of a market economy, distinguishing it from traditional, command, or mixed economies.

Traditional economies rely on customs and traditions to determine production and consumption, command economies follow centralized decision-making by the government, and mixed economies incorporate elements of both market and command systems, but it is specifically in market economies that voluntary exchanges play a pivotal role in economic decision-making.