Which of the following best describes two major virtues of the market system?

• A. prevents all forms of market failure and monopoly power
• B. allocates resources efficiently and encourages innovation
• C. guarantees government control over prices and production
• D. ensures equal distribution of income and eliminates scarcity

Answer: (B)

Verified step by step guidance

1. Understand the question: It asks for two major virtues (advantages) of the market system, which is an economic system where decisions about production and consumption are guided by the interactions of individuals and firms in markets.
2. Recall the key characteristics of a market system: It typically promotes efficient allocation of resources through supply and demand, and it encourages innovation by rewarding entrepreneurs who develop new products or methods.
3. Evaluate each option by comparing it to these characteristics: For example, the market system does not prevent all market failures or monopoly power, nor does it guarantee government control or ensure equal income distribution.
4. Identify the option that best matches the virtues of efficiency in resource allocation and encouragement of innovation, as these are widely recognized strengths of market economies.
5. Conclude that the correct description of two major virtues of the market system is that it allocates resources efficiently and encourages innovation.