In a free enterprise system, governments address public problems through policy to ensure that:

• A. resources are allocated solely by consumer preferences
• B. markets operate efficiently and public goods are provided
• C. private businesses have no competition
• D. all prices are set by the government

Answer: (B)

Verified step by step guidance

1. Understand the role of government in a free enterprise system: Governments intervene to correct market failures and provide public goods that the market may not supply efficiently on its own.
2. Recall that in a free enterprise system, resources are primarily allocated by consumer preferences through market mechanisms, but government policies ensure that markets operate efficiently and public goods are provided.
3. Recognize that private businesses having no competition contradicts the principles of a free enterprise system, which relies on competition to drive efficiency and innovation.
4. Note that all prices being set by the government is characteristic of a command economy, not a free enterprise system where prices are generally determined by supply and demand.
5. Conclude that the correct understanding is that governments address public problems through policies to ensure that markets operate efficiently and public goods are provided.