Which two important functions does a market system perform?

• A. It controls inflation and manages unemployment.
• B. It sets government policies and determines tax rates.
• C. It allocates resources and coordinates economic activity.
• D. It produces public goods and enforces property rights.

Answer: (C)

Verified step by step guidance

1. Understand that a market system is an economic system where decisions about production, consumption, and distribution are guided by the interactions of buyers and sellers in markets.
2. Recognize that one key function of a market system is to allocate resources efficiently. This means it determines what goods and services are produced, how they are produced, and for whom they are produced based on supply and demand.
3. Identify that another important function is to coordinate economic activity. Through price signals, the market system helps coordinate the decisions of millions of individuals and firms, ensuring that resources flow to their most valued uses without central planning.
4. Note that while controlling inflation, managing unemployment, setting government policies, producing public goods, and enforcing property rights are important economic functions, they are typically roles of government or other institutions, not the market system itself.
5. Summarize that the two primary functions of a market system are: (1) allocating resources efficiently and (2) coordinating economic activity through decentralized decision-making.