Which of the following best describes the market system's virtue of incentives?

• A. It eliminates the need for competition by assigning production quotas.
• B. It encourages individuals and firms to pursue activities that increase their own well-being, often leading to greater efficiency and innovation.
• C. It guarantees equal distribution of resources among all participants in the market.
• D. It ensures that government sets all prices to maximize social welfare.

Answer: (B)

Verified step by step guidance

1. Understand that the market system is driven by incentives, which motivate individuals and firms to make decisions that improve their own well-being.
2. Recognize that incentives in a market encourage competition, innovation, and efficient allocation of resources rather than eliminating competition or assigning production quotas.
3. Note that the market system does not guarantee equal distribution of resources; instead, it allows for voluntary exchange based on individual preferences and efforts.
4. Acknowledge that prices in a market system are generally determined by supply and demand, not set by the government to maximize social welfare.
5. Conclude that the virtue of incentives in a market system is best described as encouraging individuals and firms to pursue activities that increase their own well-being, which often leads to greater efficiency and innovation.