Question

In a market economy, supply and demand are important because they

a. are direct policy tools used by government agencies to regulate the economy.

b. illustrate when an market is in equilibrium, but they are not helpful when a market is out of equilibrium.

c. can be used to predict the impact on the economy of various events and policies.

d. All of the above are correct.

Part B.

Price controls

a. always produce a fair outcome.

b. always produce an efficient outcome.

c. can generate inequities of their own.

d. All of the above are correct.

Answer 1

Since in a market economy, the equilibrium is determined by the supply and demand and government intervention are not needed. This is because what to produce and how to produce and for whom to produce, all these are determined by the supply and demand of the goods and services.

Hence in a market economy, supply and demand are important because they are direct policy tools used by government agencies to regulate the economy and it illustrate when an market is in equilibrium, but they are not helpful when a market is out of equilibrium.

This also can be used to predict the impact on the economy of various events and policies.

Hence it means all the three given options are correct about the market economy.

Hence option d is the correct answer.

D; all of the above.

2.

Since the price ceiling is the example of price control and the price ceiling is a legal maximum price which can be charged by the sellers and it is set below the equilibrium price. The price ceiling imposed by the government leads shortage of goods.

Hence it can generate inequities of their own. Hence option c is the correct answer.