In which type of economy do producers make decisions based on market demand?

In a market economy, the allocation of resources, production, and pricing of goods and services are determined primarily by supply and demand forces in the marketplace. Producers respond to the preferences and purchasing behaviors of consumers, meaning their decisions regarding what to produce, how much to produce, and at what prices to sell their products are influenced by market signals. This system encourages competition and innovation, as producers strive to meet consumer demands effectively.

In contrast, a command economy relies on centralized governmental decisions to determine what is produced and in what quantities, often disregarding consumer preferences. The circular economy focuses on sustainability and the reuse of resources rather than traditional production and exchange methods. Lastly, a sole proprietorship economy refers to a business model rather than an economic system, where an individual operates and owns a business. Thus, the most accurate description of an economy driven by producer decisions based on market demand is indeed a market economy.