Question : Assertion: A market economy is characterized by decentralized decision-making by households and firms.
Reason: In a market economy, the forces of supply and demand determine prices and allocate resources.
Option 1: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Option 2: Both the assertion and reason are true, but the reason is not a correct explanation of the assertion.
Option 3: The assertion is true, but the reason is false.
Option 4: The assertion is false, but the reason is true.
Correct Answer: Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
Solution : The correct answer is (a) Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
The assertion is true. In a market economy, economic decisions regarding resource allocation, production, consumption, and pricing are made by individual households and firms. They have the freedom to make choices based on their own self-interest and preferences, without significant government intervention or control.
The reason provided is a correct explanation of the assertion. In a market economy, prices are determined by the interaction of supply and demand in various markets. The market mechanism, driven by the forces of supply and demand, facilitates the efficient allocation of resources. Prices adjust based on changes in supply and demand, signaling producers and consumers to make decisions that ultimately allocate resources where they are most valued.
Therefore, the correct answer is Both the assertion and reason are true, and the reason is a correct explanation of the assertion.
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