In a market economy, who makes the decisions that guide most economic activity?

• A. Individual consumers and firms
• B. Local authorities
• C. The central government
• D. International organizations

Answer: (A)

Verified step by step guidance

1. Understand the concept of a market economy: In a market economy, economic decisions such as what to produce, how to produce, and for whom to produce are primarily determined by the interactions of buyers and sellers in the market.
2. Identify the key decision-makers: In this system, individual consumers decide what goods and services to purchase based on their preferences and income, while firms decide what to produce and how to produce it based on profit motives and resource availability.
3. Recognize the role of prices: Prices act as signals in a market economy, guiding consumers and firms to make decisions that allocate resources efficiently without central planning.
4. Contrast with other options: Local authorities, central governments, and international organizations may influence economic activity but do not primarily guide most economic decisions in a market economy.
5. Conclude that the correct answer is individual consumers and firms, as they are the main agents making decisions that drive economic activity in a market economy.