Question

In a free market economy, the decisions of buyers and sellers are Select one: a. random b. motivated by custom and tradition. c.coordinated by the government. d. guided by prices.

Answer 1

A free market economy is characterized with minimum intervention by government or any central authority. There exists a freedom of choice and free enterprise. In such an economy the decisions regarding economic transactions are not coerced by any central authority. The demand and supply here is determined through market mechanism by rational consumers and producers. The decisions are clearly not random, neither are they coordinated by the government as there exists minimum government intervention in the economy. The decisions of the buyers and sellers will be mainly guided by prices. The seller will supply more at higher prices, showing a positive or direct relationship between supply and commodity price. While on the contrary, the buyers will demand more at lower prices, indicating a negative or inverse relationship between quantity demanded and price level. Thus the decisions of both buyers and sellers depend upon the prices.

Therefore, option d is the correct answer.