Which of the following best describes an economic system?

• A. A method for calculating national income.
• B. A government policy aimed at controlling inflation.
• C. A set of institutions and mechanisms that determine how a society allocates its scarce resources to produce and distribute goods and services.
• D. A market where only consumer goods are traded.

Answer: (C)

Verified step by step guidance

1. Understand the concept of an economic system: it refers to the framework or structure through which a society organizes the production, distribution, and consumption of goods and services.
2. Recognize that an economic system addresses the fundamental problem of scarcity by determining how limited resources are allocated among competing uses.
3. Identify that an economic system involves institutions (such as markets, governments, and firms) and mechanisms (such as prices, regulations, and customs) that coordinate economic activity.
4. Compare the given options to see which one aligns with this definition: it should describe how resources are allocated and how goods and services are produced and distributed.
5. Conclude that the correct description is the one stating that an economic system is 'a set of institutions and mechanisms that determine how a society allocates its scarce resources to produce and distribute goods and services.'