Which factor plays the biggest role in motivating economic decisions in a market economy?

• A. Tradition and customs
• B. Random chance
• C. Prices and profits
• D. Government regulations

Answer: (C)

Verified step by step guidance

1. Understand the context of a market economy, where economic decisions are primarily driven by the interactions of buyers and sellers.
2. Recognize that in a market economy, prices serve as signals that convey information about the scarcity and value of goods and services.
3. Identify that profits act as incentives for producers to allocate resources efficiently and innovate, guiding their production decisions.
4. Compare the given options: tradition and customs influence decisions in traditional economies, random chance is not a systematic motivator, and government regulations play a role but are not the primary driver in a market economy.
5. Conclude that prices and profits are the main factors motivating economic decisions in a market economy because they coordinate supply and demand through incentives and information.