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Under a socialist economy, the prices that prevail are best described as:
AMarket prices set freely by demand and supply
BAdministered prices set by the central planning authority
CNegotiated prices fixed between buyers and sellers
DAuction prices set by competitive bidding
Answer & Solution
Correct answer: B. Administered prices set by the central planning authority
1. In socialism the profit motive is absent and price mechanism plays only a secondary role.
2. Prices are fixed by the central planning authority on socio-economic grounds.
3. Such prices are called administered prices.
4. Market, negotiated and auction prices all rely on free interaction of buyers and sellers, which socialism restricts.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 1 Unit II "Basic Problems of an Economy and Role of Price Mechanism", p.6_
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