Question

Which is a standout feature of a Capitalist or Market Economy?

• A. Prices are decided by each and every individual
• B. Prices are decided by the government
• C. Prices adjust depending on the market mechanism
• D. None of the above

Answer 1

The correct option is C Prices adjust depending on the market mechanism

Unlike the Planned economy where prices are decided by the Government, capitalist economy rely upon the market forces (demand and supply) to adjust price. As the demand goes up prices increase, production of such commodities also increase adjusting the price at equilibrium. Similarly when the commodity is available in surplus the supply is reduced and prices come down.