Introduction to Business EconomicsMODULEQuestion 763 of 209
All Questions

Which of the following statements does not apply to a market economy?

Options

AFirms decide whom to hire and what to produce.
BFirms aim at maximizing profits
CHouseholds decide which firms to work for and what to buy with their incomes.
DGovernment policies are the primary forces that guide the decisions of firms and households.
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Correct Answer

✅ Option d — Government policies are the primary forces that guide the decisions of firms and households.

All Options:

  • AFirms decide whom to hire and what to produce.
  • BFirms aim at maximizing profits
  • CHouseholds decide which firms to work for and what to buy with their incomes.
  • DGovernment policies are the primary forces that guide the decisions of firms and households.

Detailed Solution & Explanation

To determine which statement does not apply to a market economy, let's analyze the characteristics of a market economy. • A market economy is defined as an economic system where the production, distribution, and prices of goods and services are determined by the market forces of supply and demand. • In a market economy, firms have the freedom to decide what to produce, how much to produce, and whom to hire, which aligns with the concept of profit maximization. • Households also have the freedom to choose which firms to work for and what goods and services to buy with their incomes, based on their preferences and budget constraints. The correct answer is the statement that says government policies are the primary forces that guide the decisions of firms and households, because in a market economy, it is the market forces of supply and demand that primarily guide these decisions, not government policies. The other options are incorrect because they accurately describe the characteristics of a market economy, where firms aim to maximize profits and households make choices based on their preferences and incomes.

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 Syllabus

Exam 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.

Related Comparison Tables

Microeconomics vs Macroeconomics: The Complete CA Foundation GuidePositive vs Normative Economics: Fact vs Opinion

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