Which of the following best explains how a mixed economy addresses problems that arise from capitalism?

• A. By allowing only free market forces to determine the allocation of resources without any government involvement.
• B. By combining government intervention with market forces to correct market failures and promote social welfare.
• C. By eliminating private ownership and placing all resources under government control.
• D. By restricting consumer choice to ensure equal distribution of goods and services.

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the concept of a mixed economy. A mixed economy combines elements of both capitalism (free markets) and government intervention to manage economic activities.
2. Step 2: Identify the problems that can arise in a purely capitalist system, such as market failures, externalities, and unequal distribution of wealth.
3. Step 3: Recognize that a mixed economy addresses these problems by allowing market forces to operate while also enabling government intervention to correct market failures and promote social welfare.
4. Step 4: Compare the options given: the correct explanation involves a combination of market forces and government intervention, rather than relying solely on free markets or complete government control.
5. Step 5: Conclude that the best explanation is that a mixed economy uses both government intervention and market forces to allocate resources efficiently and fairly.