How are decisions about production made in a market economy ?
Correct answer: C. Through a price system
- A. By a command system
- B. According to tradition
- C. Through a price system
- D. By executive fiat
Explanation
In a market economy, prices convey information about scarcity and demand, guiding consumers and producers toward their production and purchasing decisions. Command systems and executive orders are features of centrally directed economies.
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Individual consumers, firms and markets are examined through demand and supply, elasticity, consumer choice, production, costs, revenue and the determination of prices and output. The topic also covers market structures such as perfect competition, monopoly and oligopoly, plus market failure, externalities and the distinction between microeconomic decisions and economy-wide outcomes.
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