In a market system, how are decisions about how to allocate resources made?
A) by individuals and firms interacting in markets coordinated by market prices
B) by central planning boards in each industry
C) by a lottery system
D) by large conglomerates working cooperatively with the government

Question

Quizplus · Accepted Answer

In a market system, decisions about how to allocate resources are made by individuals and firms interacting in markets, and the interaction is coordinated by market prices. This is known as the price mechanism, where prices signal both buyers and sellers on how much to produce, what to consume, and what to produce. The allocation of resources is done based on the consumers' willingness to pay for goods and services, which creates incentives for firms to produce what consumers value the most. Therefore, the market system is also commonly referred to as a price system or a price mechanism. Options B, C, and D are incorrect as they do not align with the fundamental principles of a market system.

In a Market System, How Are Decisions About How to Allocate