Capitalist economy solve their economic problems through which of the following
Options
ACentral planning authority
BPrice mechanism
CAdministered prices
DVoting done by customers
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Introduction to Business EconomicsPYQ Jun 23Question 689 of 209
All Questions Correct Answer
✅ Option b — Price mechanism
All Options:
- ACentral planning authority
- BPrice mechanism
- CAdministered prices
- DVoting done by customers
Detailed Solution & Explanation
• Capitalist economies, also known as market economies, are characterized by private ownership of resources and minimal government intervention.
• The core mechanism through which these economies allocate resources and solve fundamental economic problems (what to produce, how to produce, and for whom to produce) is the price mechanism.
• The price mechanism refers to the interaction of demand and supply in markets, which determines prices. These prices act as signals to both consumers and producers.
• For example, if a good is in high demand, its price will rise, signaling to producers that there is a profit opportunity, thus encouraging them to produce more. Conversely, if a good is in low demand, its price will fall, signaling to producers to reduce production.
• This decentralized system of price signals guides resource allocation efficiently without the need for a central authority.
• Option (A) Central planning authority is incorrect because this is characteristic of a socialist or centrally planned economy, where the government makes all economic decisions.
• Option (C) Administered prices are prices set by the government or a regulatory body, which is contrary to the free market principles of a capitalist economy where prices are determined by market forces.
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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