In a market economy, regulation and allocation of resources are primarily determined by which of the following?

• A. Random allocation
• B. Central government planning
• C. The forces of supply and demand
• D. Tradition and customs

Answer: (C)

Verified step by step guidance

1. Understand the concept of resource allocation in a market economy, which refers to how resources are distributed among producers and consumers.
2. Recognize that in a market economy, the primary mechanism for resource allocation is the interaction between supply and demand, which determines prices and quantities of goods and services.
3. Recall that random allocation means resources are distributed without any systematic method, which is not typical in market economies.
4. Note that central government planning is characteristic of command economies, not market economies, where the government controls resource allocation.
5. Understand that tradition and customs influence allocation in traditional economies, but in market economies, the forces of supply and demand play the central role.