Question

Who decides 'what to produce' in a market economy?

• A. Planning commission
• B. Market mechanism
• C. Government
• D. None of these

Hint:

In a market economy, production decisions are made through the interaction of supply and demand, also known as the market mechanism.

Answer 1

The Correct Option is B

Step 1: Understanding market economy.
In a market economy, decisions regarding what to produce are made based on the forces of supply and demand. The market mechanism, which includes the interaction of consumers and producers, determines what goods and services should be produced, how they should be produced, and for whom they should be produced.

Step 2: Analyzing the options.
(A) Planning commission: This is not correct. A planning commission is typically involved in a centrally planned or mixed economy, not in a market economy.
(B) Market mechanism: Correct. In a market economy, the market mechanism, driven by consumer preferences and producer choices, determines what to produce.
(C) Government: The government does not directly decide what to produce in a market economy, although it may regulate and influence the economy.
(D) None of these: This is incorrect, as the correct answer is (B) Market mechanism.

Step 3: Conclusion.
The correct answer is (B) Market mechanism, as this is what drives the production decisions in a market economy.