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Difficulty: MediumBasic Economic Problems of Society

In a free market economic system, the fundamental economic decision of 'for whom to produce' is resolved primarily by the distribution of purchasing power and effective demand among consumers, rather than by individual need or administrative rationing.

Answer: Answer

Answer

The statement is True.
The statement is correct because the price mechanism in a free market allocates finished goods and services according to consumers' disposable income and effective demand. Consumers with higher purchasing power command a greater share of society's output.

Step-by-Step Solution

1
Identify the basic economic problem referenced in the statement
The statement concerns the fundamental economic problem of 'for whom to produce'.
Understanding which basic problem is being evaluated clarifies the allocation mechanism involved.
2
Analyze how a free market economy resolves 'for whom to produce'
In a market system, income distribution and price signals dictate access to goods and services.
Producers supply goods to individuals who demonstrate effective demand (ability and willingness to pay).
3
Evaluate the correctness of the statement
The statement accurately describes the market-based resolution of the distribution problem.
Purchasing power, not administrative planning or social equity, governs product distribution under pure price mechanism.

Key Concept

Basic Economic Problems of Society - For Whom to Produce in Market Systems
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Topics

Basic Economic Problems of Society

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