Which of the following statements is true about a market economy ?
Correct answer: B. Market participants act as if guided by an invisible hand to produce outcomes that maximize social welfare
- A. With a large enough computer, central planners could guide production more efficiently than markets.
- B. Market participants act as if guided by an invisible hand to produce outcomes that maximize social welfare
- C. The strength of a market system is that it tends to distribute resources evenly across consumers.
- D. Taxes help prices communicate costs and benefits to producers and consumers.
Explanation
The invisible-hand principle says that self-interested market decisions can coordinate resources toward greater overall welfare when competitive-market conditions hold. Markets do not necessarily distribute resources evenly, and central planning cannot reliably replace price signals.
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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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