Which two important functions does a market system perform?

• A. It allocates resources and coordinates economic activity.
• B. It controls inflation and manages unemployment.
• C. It produces public goods and enforces property rights.
• D. It sets government policies and determines tax rates.

Answer: (A)

Verified step by step guidance

1. Understand that a market system is an economic system where decisions about production, investment, and distribution are guided by the price signals created by supply and demand.
2. Identify the primary roles of a market system, which include how resources are allocated among competing uses and how economic activities are coordinated among different agents (consumers, producers, etc.).
3. Recognize that 'allocating resources' means the market system determines what goods and services are produced, how much, and by whom, based on consumer preferences and resource availability.
4. Understand that 'coordinating economic activity' refers to how the market system aligns the actions of various participants through prices, ensuring that supply meets demand efficiently without central planning.
5. Conclude that the two important functions of a market system are to allocate resources efficiently and to coordinate economic activity, distinguishing these from other functions like controlling inflation or setting policies, which are typically roles of government.