CA Foundation P4 · Chapter 1 · Question 15 of 15
In a free market economy, the problem of 'for whom to produce' is solved mainly by:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: D) The distribution of purchasing power, which depends on factor incomes earned in the market
Explanation
Under the price mechanism, goods go to those who are willing and able to pay. Ability to pay depends on income from wages, rent, interest and profit, which are themselves prices determined in factor markets. Technique choice answers 'how to produce', and government quantity decisions belong to planned economies.