A capitalist economy uses ______ as principal means of allocating resources.
Options
Ademand
Bsupply
Cefficiency
DPrices
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Introduction to Business EconomicsMTP Oct 20Question 615 of 209
All Questions Correct Answer
✅ Option d — Prices
All Options:
- Ademand
- Bsupply
- Cefficiency
- DPrices
Detailed Solution & Explanation
• In a capitalist economy, also known as a market economy, the fundamental problem of resource allocation (what to produce, how to produce, and for whom to produce) is primarily solved through the interaction of buyers and sellers in markets.
• The correct answer is (D) Prices. Prices act as signals in a capitalist system. When demand for a good is high, its price tends to rise, signaling to producers that more of that good should be produced. Conversely, if demand is low, prices fall, signaling a need to reduce production or reallocate resources elsewhere. This mechanism efficiently guides resources to their most valued uses.
• This concept is central to the "invisible hand" theory proposed by Adam Smith, where individual self-interest, guided by prices, leads to an efficient allocation of society's resources.
• (A) Demand and (B) Supply are incorrect because while they are crucial forces that *determine* prices, they are not the *means* of allocating resources themselves. Prices are the direct mechanism that translates demand and supply signals into resource allocation decisions.
• (C) Efficiency is a *goal* or an *outcome* of a well-functioning capitalist system, not the means by which resources are allocated. The price mechanism aims to achieve efficiency in resource use.
About This Chapter: Introduction to Business Economics
Paper
Paper 4: Business Economics
Weightage
5%
Key Topics
Meaning, Scope, Price Mechanism
This chapter lays the groundwork for understanding Business Economics as a discipline. It covers the meaning, scope, and nature of economics — including key distinctions like Microeconomics vs Macroeconomics, Positive vs Normative economics, and the fundamental economic problem of scarcity. Students learn how businesses use economic principles for decision-making in a competitive marketplace.
View Official ICAI SyllabusExam Strategy Tip
Focus on definitions and distinctions between concepts. Questions often test whether you understand the difference between Micro and Macro, or Positive and Normative statements.
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