The "informal defence" of free markets includes the argument that competitive markets
1)lead to allocative efficiency;
2)provide automatic coordination of the actions of decentralized decision makers;
3)provide a stimulus to innovation and economic growth because of the pursuit of profits.
A)1 only
B)2 only
C)3 only
D)1 and 2
E)2 and 3

Question

Quizplus · Accepted Answer

The argument for the informal defense of free markets includes all three statements as they are all true. Competitive markets are said to lead to allocative efficiency because of the price mechanism that drives the allocation of resources towards where they are most valued. They provide automatic coordination of decentralized decision makers as prices and profits act as signals for resource allocation without central planning. Additionally, the pursuit of profits by firms creates a competitive environment that promotes innovation and economic growth.

The "Informal Defence" of Free Markets Includes the Argument That