Which of the following best describes a free market economy?

• A. An economic system where the government sets prices and controls production.
• B. An economic system where businesses are prohibited from making profits.
• C. An economic system where all resources are owned collectively by society.
• D. An economic system where prices and production are determined by unrestricted competition between privately owned businesses.

Answer: (D)

Verified step by step guidance

1. Understand the definition of a free market economy: it is an economic system where prices and production are determined by the forces of supply and demand without government intervention.
2. Recognize that in a free market economy, businesses are privately owned and compete freely, which influences prices and the quantity of goods produced.
3. Eliminate options that describe government control, collective ownership, or restrictions on profits, as these contradict the principles of a free market.
4. Focus on the option that highlights unrestricted competition between privately owned businesses as the key characteristic of a free market economy.
5. Conclude that the best description of a free market economy is the one where prices and production are determined by unrestricted competition between privately owned businesses.