What defines a pure market economy?

A pure market economy is defined primarily by the operation of market forces guided by the principles of supply and demand, often referred to as the "invisible hand." This concept, introduced by economist Adam Smith, explains how individual self-interests in a free market can lead to economic prosperity as participants seek to maximize their own benefits. In a pure market economy, decisions regarding production, distribution, and pricing are driven by the interactions of consumers and producers, without significant intervention from government or central authorities.

In this type of economy, resources are allocated efficiently as businesses respond to consumer demand, ultimately fostering innovation and growth through competition. The absence of government interference allows for more flexibility and responsiveness to changes in the market.

The other elements described in the options represent different economic structures. Government control over all production and centralized economic planning are characteristics of a command or planned economy, where the state dictates economic activity. Extensive taxation of profits would imply a level of government intervention that contradicts the free-market principles of a pure market economy. Thus, the defining feature is the reliance on market forces operating freely under the guiding principle of the invisible hand.