The market system depends on private property and the protection of property rights to:

• A. ensure that resources are allocated by government decree
• B. prevent voluntary exchange between buyers and sellers
• C. encourage individuals to invest and innovate
• D. eliminate all forms of competition

Answer: (C)

Verified step by step guidance

1. Understand the role of private property and property rights in a market system: they provide individuals with the legal assurance that their resources and investments are protected.
2. Recognize that this protection encourages individuals to invest in resources and innovate because they can expect to reap the benefits of their efforts without fear of arbitrary seizure or loss.
3. Analyze why the other options are incorrect: government decree allocation contradicts the decentralized nature of markets; preventing voluntary exchange goes against the fundamental principle of markets; eliminating competition would reduce efficiency and innovation.
4. Conclude that the protection of property rights primarily serves to encourage investment and innovation by ensuring individuals can securely own and use resources.
5. Summarize that this mechanism is essential for the efficient functioning of markets, as it motivates economic agents to engage in productive activities.