In free market economy the allocation of resources is determined by?
Dear Student, In a free market economy, resources are allocated through free market forces. Following are the problems of an economy in allocation of resources -: (i) What to produce and in what quantity?: This is the problem of choosing the goods which need to be produced. It is a question of whether to produce more food, clothing, housing, or luxury goods, more agriculture produces or industrial: produce. Whether to use resources in education and health or in building military services. And next is in what quantity. Since the resources are limited so goods to be produced in limited quantity so that wastage of resources should not happen. (ii) How to produce? Next problem arises regarding how to produce which means that deciding the technic whether to produce goods with manuals labour or with the use of a machine. Which of the available technology should be adopted for this. (iii) For whom to produce? The last problem is regarding to make choice of that for whom goods are produced. Who gets how much of the goods produced in the economy. Goods are produced for the consumption and every individual should get an equal amount. So, this means that what to produce is determined by consumers, how to produce is determined by producers, and how much and for whom to produce is determined by purchasing power of consumers. Regards,