Question

In a market economy, supply and demand determine a. both the quantity of each good produced and the price at which it is sold. b. the quantity of each good produced but not the price at which it is sold. c. the price at which each good is sold but not the quantity of each good produced. d. neither the quantity of each good produced nor the price at which it is sold.

Answer 1

Answer: Option (a) is correct.

Explanation:

Market economy refers to a economy in which there is no possibility of government intervention in terms of price controls, provide subsidies, taxes, etc. In this economy, price and quantity of goods are determined by the market forces and these market forces are demand and supply.

There are generally large number of buyers and sellers. All the firms are required to charge equilibrium price and sell equilibrium quantity.