Question

In a market economy, a. the allocation of scarce resources determines prices and prices, in turn, determine supply and demand. b. supply and demand determine prices and prices, in turn, allocate the economy’s scarce resources. c. demand determines supply and supply, in turn, determines prices. d. supply determines demand and demand, in turn, determines prices.

Answer 1

Answer:

In a market economy,the impact of supply and demand determines the prices of goods and services which in sequence influence the allocation of economy's scarce resources.Hence,the correct answer wold be option b.

Explanation:

In a market economy,much of the economic and commercial activities such as production,investment,allocation,consumption of goods and services are governed by their market prices which are determined completely by the free forces of supply and demand in the economy.In a market economic system,the factors or inputs of production are owned and allocated by the independent or private business organisations or firms with limited government or state control over the means of production.Majority of the commodity and service markets are free of any external state or government intervention and operate freely based on the movements and fluctuations of the market prices of goods and services which are determined by the changes in market demand or supply.Therefore,economic allocation or arrangements of goods and services in a market economy is mostly determined by the free interaction of demand and supply