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CA Foundation · Business Economics · Nature and Scope of Business Economics

In a pure capitalist (market) economy, the central problem of 'what to produce' is mainly resolved through:

In a pure capitalist economy, what to produce is decided by consumers' spending, which shows up as demand and prices. Higher prices and profits attract producers to those goods. Central planning is the feature of a socialist economy, not a market economy.

  1. ADirectives issued by a central planning authority
  2. BConsumers' spending decisions that signal demand through pricesCorrect
  3. CCustomary practices handed down across generations
  4. DGovernment quotas fixed for each industry

Explanation

In a capitalist economy, consumers vote with rupees. Goods that fetch higher prices and profits attract more resources, so producers respond to demand signals. Central directives describe a socialist economy and custom describes a traditional economy, so those options are wrong.

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