A set of arrangements where economic agents can freely exchange their endowments or products with each other. Such an economy is defined as?

Market Economy.

The correct answer is Option (3) → Market Economy.

A market economy is an economic system where economic agents (like consumers and producers) can freely exchange goods, services, and resources without central planning or government control. Prices are determined by demand and supply, and individuals make decisions based on their self-interest.

• Centrally Planned Economy: In this type of economy, decisions about production and distribution are made by a central authority, typically the government. Free exchange among economic agents is highly restricted or non-existent, as the state controls resources and production.

• Closed Economy: This term refers to an economy that does not engage in international trade or financial transactions.

• Socialist Economy: In a socialist economy, the means of production are largely owned or controlled by the community as a whole, often through the state. While some forms of socialism might allow for certain levels of market exchange, the core principle is collective or state ownership, which often limits the "free exchange" characteristic of a pure market system.