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According to the unit's summary, which tool does each economy use to solve its basic problems: capitalist, socialist and mixed respectively?
ABoth combined; price mechanism; central planning
BCentral planning; price mechanism; both combined
CPrice mechanism; central planning; both combined
DPrice mechanism; both combined; central planning
Answer & Solution
Correct answer: C. Price mechanism; central planning; both combined
1. A capitalist economy solves its problems through the price mechanism.
2. A socialist economy solves its problems through central planning.
3. A mixed economy uses a combination of price mechanism and central planning.
4. Only the price mechanism, central planning, both combined order is correct; the rest scramble at least one of the three pairings.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 1 Unit II "Basic Problems of an Economy and Role of Price Mechanism", p.8_
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