An institution which organizes the free interaction of individuals pursuing their respective economic activities, is known as........

Market Economy.

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

A market economy is an economic system where the allocation of resources and the determination of prices are driven by the free interaction of individuals pursuing their own economic interests. In such an economy:

• Decisions on production, investment, and consumption are guided by the forces of supply and demand.

• There is minimal government interference, and individuals and firms are free to make their own economic choices.