Question

An economic system in which the interaction of supply and demand determines the quantity in which goods and services are produced is called a ________ system.

Answer 1

Answer:

The correct answer is Market Economy.

Explanation:

The market economy is an economic system where the fundamental decisions of what, how and for whom to produce are resolved through the market.

In a market economy, the interaction of supply and demand is what determines the quantity and equilibrium price of goods and services traded. Also, the market is responsible for the distribution of income through the possession of productive factors (capital, labor, etc.)

The State, for its part, would have the role of providing a legal framework that allows free competition and initiative of companies. This includes the protection of property rights, the intermediation of conflicts (Courts) and the subsidiary action in those cases in which competition is not feasible or limited.

Basing a system on the market economy gives importance to the balances originated between suppliers and claimants, which will determine their allocations of goods and services to produce and consume, with a high degree of independence of powers or institutions.