If there is no central planning authority to make the fundamental

Q7) If there is no central planning authority to make the fundamental economic decisions and thus to allocate productive resources, how can then free enterprise or capitalist economy solve its central problems?

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Correct

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Solution:
The correct answer is (c) The free market economy uses the impersonal forces of the market to solve its central problems.

In a free enterprise or capitalist economy, decisions regarding the allocation of productive resources are not made by a central planning authority but are left to the market forces of supply and demand. Producers and consumers interact in markets, where prices are determined by the forces of supply and demand. Through these market interactions, the economy allocates resources among different uses and solves its central problems.

Option (a) is incorrect because the power of God is not a relevant factor in the functioning of a free enterprise or capitalist economy.

Option (b) is also incorrect because the decisions taken by industrial groups would not necessarily result in the efficient allocation of resources in the absence of a central planning authority or the market forces of supply and demand.

Option (d) is incorrect because the free market economy does solve its central problems through the market forces of supply and demand.
Correct option is (c)

C A foundation Economics Paper4 Part I Questions for practice