Which feature is characteristic of a market economy?

• A. Government owns all means of production.
• B. Resources are allocated based on tradition.
• C. Central authorities set production targets.
• D. Prices are determined by supply and demand.

Answer: (D)

Verified step by step guidance

1. Understand the definition of a market economy: it is an economic system where decisions about production, investment, and distribution are guided by the price signals created by supply and demand.
2. Recognize that in a market economy, private individuals and firms own the means of production rather than the government, which contrasts with command economies where the government owns resources.
3. Note that resource allocation in a market economy is not based on tradition (as in traditional economies) or central planning (as in command economies), but rather on the interaction of buyers and sellers in markets.
4. Recall that prices in a market economy are determined by the forces of supply and demand, which balance the quantity of goods and services supplied by producers with the quantity demanded by consumers.
5. Therefore, the characteristic feature of a market economy is that prices are determined by supply and demand, guiding resource allocation efficiently without central control.