Question

In a market economy, supply and demand are important because they a. play a critical role in the allocation of the economy’s scarce resources. b. determine how much of each good gets produced. c. can be used to predict the impact on the economy of various events and policies. d. All of the above are correct.

Answer 1

Answer:

The answer is: D) All of the above are correct.

Explanation:

Theoretically in a market economy, the supply and demand of goods should play a critical role in the allocation of resources. One basic rule in economy is that resources are scarce, and the demand and supply helps us obtain the maximum benefit from our scarce resources.

The supply and demand should tell us how much of a good or service should be produced to reach an equilibrium point were both suppliers and consumers are satisfied.

A true market economy should not be affected by external events and policies but in the real world governments exist and markets are regulated, some more than others. The supply and demand curve should help us predict how those external events will affect the economy.