Examkin

Question

Difficulty: EasyFree Market Economy (Capitalism)

In a free market economy, consumer sovereignty implies that the allocation of resources is primarily dictated by consumer preferences expressed through market demand.

Answer: Answer

Answer

True. In a free market economy, consumer sovereignty ensures that resource allocation is driven by consumer preferences through price signals.
The statement is correct because consumer sovereignty means that consumer demand acts as the principal guide for producers deciding what goods to produce.

Step-by-Step Solution

1
Define consumer sovereignty within capitalism
Consumer sovereignty refers to the power of consumers to determine what goods and services are produced based on their buying choices.
Producers in a free market seek to maximize profits by responding directly to consumer demand.
2
Evaluate the statement against the core principle
The statement accurately captures how consumer demand guides market resource allocation without state intervention.
The price mechanism transmits consumer preferences to suppliers.

Key Concept

Consumer Sovereignty in a Free Market Economy
Rate this question

Topics

Free Market Economy (Capitalism)

More questions from this topic