CA Foundation · Business Economics · Nature and Scope of Business Economics
In a pure capitalist (market) economy, the three central questions of what to produce, how to produce and for whom to produce are primarily resolved by:
In a pure capitalist economy, the central economic questions are solved by the price mechanism, where demand and supply determine prices. Prices signal scarcity and profitability to producers and consumers, so no central authority is needed. Central planning belongs to a socialist economy.
- AA central planning authority that fixes output targets
- BThe price mechanism operating through demand and supplyCorrect
- CGovernment licensing of every industry
- DCooperative societies run by workers
Explanation
In a capitalist economy, private ownership and profit motive guide decisions, and relative prices signal what is scarce and what is in demand. Central planning is the feature of a socialist economy, so the first option describes a different system. Licensing and cooperatives are not the main allocation device in a market economy.
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