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CMA Foundation · Fundamentals of Business Economics and Management · The Fundamentals of Economics

In a market economy, the problem of 'for whom to produce' is mainly resolved by which of the following?

In a market economy, 'for whom to produce' is resolved by consumers' purchasing power, which depends on their incomes. Goods and services go to those who are willing and able to pay the price. Central planning decides this in a command economy, not in a market economy.

  1. AThe purchasing power of consumers, determined by their incomesCorrect
  2. BThe decision of a central planning authority
  3. CThe technology used in factories
  4. DThe number of firms in the industry

Explanation

'For whom to produce' concerns distribution of output among people. In a market economy, goods go to those with money and willingness to pay, so income-based purchasing power decides it. A central planning authority does this in a planned economy, so that option is wrong for a market economy.

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