Which of the following statements does NOT apply to a market economy?

• A. Competition among sellers helps regulate prices and quality.
• B. Resources are allocated primarily through government planning.
• C. Prices are determined by the interaction of supply and demand.
• D. Individuals and firms make decisions based on their own self-interest.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the definition of a market economy. In a market economy, resources are allocated through the decentralized decisions of individuals and firms, primarily guided by supply and demand rather than government intervention.
2. Step 2: Analyze the statement 'Competition among sellers helps regulate prices and quality.' This aligns with market economy principles because competition drives efficiency and innovation.
3. Step 3: Consider the statement 'Prices are determined by the interaction of supply and demand.' This is a fundamental characteristic of a market economy, where prices emerge from market forces.
4. Step 4: Evaluate the statement 'Individuals and firms make decisions based on their own self-interest.' This reflects the incentive structure in a market economy, where self-interest motivates economic activity.
5. Step 5: Examine the statement 'Resources are allocated primarily through government planning.' This contradicts the core idea of a market economy, as it describes a command or planned economy where the government controls resource allocation.