Price in capitalist economy is determined by:
Options
ASmall private firms
BBig corporates
CMarket forces of demand and supply
DGovernment
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Introduction to Business EconomicsPYQ Sep 24Question 688 of 209
All Questions Correct Answer
✅ Option c — Market forces of demand and supply
All Options:
- ASmall private firms
- BBig corporates
- CMarket forces of demand and supply
- DGovernment
Detailed Solution & Explanation
• In a capitalist economy, the fundamental principle is that resources are privately owned and economic decisions are largely decentralized.
• The core mechanism for allocating resources and setting prices in such an economy is the interaction of buyers and sellers in the market.
• This interaction gives rise to the forces of demand (how much consumers are willing and able to buy at various prices) and supply (how much producers are willing and able to sell at various prices).
• The equilibrium price, where the quantity demanded equals the quantity supplied, is naturally determined by these market forces. This is a cornerstone of classical and neoclassical economic theory.
• Therefore, option (C) Market forces of demand and supply is the correct answer because it accurately describes this fundamental price determination mechanism in capitalism.
• Option (A) Small private firms and (B) Big corporates are incorrect because while individual firms (whether small or large) participate in the market, they do not unilaterally determine prices. They are price-takers or have limited price-setting power within the broader market structure, responding to overall demand and supply conditions.
• Option (D) Government is incorrect because in a pure capitalist economy, government intervention in price setting is minimal. Prices are not centrally planned or dictated by the state, unlike in a command or socialist economy.
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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