How are goods and services allocated in a market economy?

Question

Quizplus · Accepted Answer

In a market economy, goods and services are allocated through the actions of all firms and consumers. Prices and demand determine what goods and services are produced and how much of each is produced, as firms respond to the signals sent by consumers through their purchasing decisions. This decentralized decision-making process results in an efficient allocation of resources, as each individual's self-interest is aligned with the overall goal of maximizing societal welfare. The government's role in a market economy is generally limited to enforcing property rights and contracts, protecting competition, and providing a basic legal framework for market transactions to take place. Therefore, A) by government decisions and B) by giving each individual just enough for a decent standard of living are not accurate descriptions of how goods and services are allocated in a market economy. D) by inherited rights and properties is not a relevant factor in the allocation of goods and services in a market economy.

How Are Goods and Services Allocated in a Market Economy