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

In a pure capitalist (market) economy, the three basic questions of what to produce, how to produce and for whom to produce are primarily settled by:

In a pure capitalist economy, the central problems of what, how and for whom to produce are solved by the price mechanism, meaning the free interaction of demand and supply in markets, rather than by a government planner, custom or rationing.

  1. AA central planning authority issuing production targets
  2. BThe interaction of demand and supply through the price mechanismCorrect
  3. CVillage panchayats allocating resources by custom
  4. DThe government through ration cards and licences

Explanation

In a capitalist economy resources are privately owned and decisions are guided by prices formed through demand and supply. Central planning is the feature of a socialist economy. Custom-based allocation belongs to traditional societies, and rationing is a feature of controlled systems, not a pure market.

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