Multiple Choice
Which of the following statements best distinguishes between positive and normative analysis in economics?
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0. Basic Principles of Economics
Positive and Normative Analysis
Multiple Choice
Which of the following statements best distinguishes between a planned approach and a market approach in economic systems?
A
Both approaches use supply and demand to allocate resources without any government intervention.
B
A planned approach relies on central authorities to allocate resources, while a market approach relies on individual decision-makers and price signals.
C
A planned approach allows prices to fluctuate freely, while a market approach fixes prices by government decree.
D
A market approach eliminates private property, while a planned approach encourages private ownership.
Verified step by step guidance1
Step 1: Understand the key characteristics of a planned economic system. In a planned economy, central authorities (such as the government) make decisions about the allocation of resources, production, and distribution, rather than relying on individual market participants.
Step 2: Understand the key characteristics of a market economic system. In a market economy, individual decision-makers (consumers and producers) interact through markets, and prices are determined by supply and demand, serving as signals to allocate resources efficiently.
Step 3: Compare the role of government intervention in both systems. A planned economy involves significant government control and planning, while a market economy relies on decentralized decision-making with minimal government interference.
Step 4: Analyze the given statements to identify which one correctly contrasts these two approaches based on the role of central authorities versus individual decision-makers and price signals.
Step 5: Conclude that the statement highlighting that a planned approach relies on central authorities to allocate resources, while a market approach relies on individual decision-makers and price signals, best distinguishes between the two economic systems.
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