How are decisions about production made in a market economy?

Question

Quizplus · Accepted Answer

In a market economy, decisions about production are made through a price system. This means that the price of goods and services in the market is determined by the interaction of supply and demand. Producers make decisions based on the signals they receive from the market, such as the price of goods and the level of demand. This system allows for competition and efficiency in production. A command system (A) involves central planning and government control of production, while decision-making based on tradition (B) does not take into account changes in the market or technological advancements. Executive fiat (D) means that decisions are made by a single person without input or consensus from others, which is not characteristic of a market economy.

How Are Decisions About Production Made in a Market Economy