Question

___________ is a market where economic agents can freely exchange their endowments with each other.

• A. Market economy
• B. Centrally planned economy
• C. Aggregate demand-based economy
• D. Aggregate supply-based economy

Answer 1

The Correct Option is A

A market economy allows free exchanges between economic agents based on supply and demand.

Answer 2

A market economy is a system where the production and distribution of goods and services are guided by the forces of supply and demand. In this type of economy, decisions regarding what to produce, how to produce, and for whom to produce are primarily made by individuals and businesses, rather than by a central authority.

In a market economy, economic agents—such as consumers, producers, and workers—interact freely in the marketplace. Prices are determined by the balance between supply (the quantity of goods and services available) and demand (the quantity of goods and services that consumers are willing to purchase at various prices). These interactions drive competition, innovation, and the efficient allocation of resources.

The flexibility of a market economy allows for a wide variety of goods and services to be produced in response to consumer preferences. It also encourages entrepreneurship and investment, fostering economic growth and wealth creation. However, the system can sometimes lead to inequalities, market failures, and externalities that may require intervention from the government to address.