With reference to the circular flow of income,how is the allocation of resources largely decided?
A)by central authorities only
B)by central authorities and firms only
C)by individuals only
D)by firms and households acting independently
E)by political parties and firms only

Question

Quizplus · Accepted Answer

In a market economy, the allocation of resources is largely decided by firms and households acting independently in response to market forces. Firms, seeking to maximize profits, allocate resources based on the prices they can get for a good or service. Households, seeking to maximize utility, allocate their resources based on their preferences and the prices they face in the market. Central authorities may play a role in setting regulations and taxes, but overall, the allocation of resources is determined by the decisions of individuals and firms in the marketplace.

With Reference to the Circular Flow of Income,how Is the Allocation