Question : In a free-enterprise economy, the question of what, how and for whom to produce are solved by
Option 1: The price mechanism
Option 2: A planning forum
Option 3: The elected representatives of the people
Option 4: None of the above
Correct Answer: The price mechanism
Solution :
The correct answer is (a) The price mechanism.
The price mechanism, also known as the market mechanism, is the process by which the interaction of supply and demand in a competitive market determines the allocation of resources. Through the price mechanism, the decisions about what goods and services to produce are influenced by consumer demand. Producers respond to price signals and adjust their production accordingly.
The price mechanism also guides decisions about how to produce, as firms seek to minimize costs and maximize profits in response to market prices.
Additionally, the distribution of goods and services among individuals is determined by the ability and willingness of consumers to pay for them, which is reflected in prices.
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