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

Option 1: Centrally Planned Economy -> Government controls all economic decisions, limiting individual freedom.

Option 2: Mixed Economy -> Combines market and planned elements, but not purely free interaction.

Option 3: Market Economy -> Individuals freely interact through supply and demand mechanisms.

Option 4: Colonised Economy -> Economy controlled by colonial powers, not free interaction.

Hence, Option 3: Market Economy -> A market economy is characterized by the free interaction of individuals and businesses pursuing their own economic interests. Decisions about production, distribution, and consumption are driven by market forces of supply and demand rather than central planning. This system allows for voluntary exchange, private property rights, and minimal government intervention, enabling individuals to freely organize their economic activities through market mechanisms. -> correct