An economic system is said to be a   a. market economy if there is substantial central planning   b. traditional economy if it relies on extensive market trading   c. market economy if it...

An economic system is said to be a
   a. market economy if there is substantial central planning
   b. traditional economy if it relies on extensive market trading
   c. market economy if it relies on self-interested behavior and incentives
   d. command economy if it relies on long-standing practices

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Of these options, the only correct answer is C.  A economic system that relies on self-interested behavior and incentives is a market economy.

A is wrong because market economies are not planned.  A economy with substantial central planning is, in economic language, a command economy.  In a command economy, the government answers the fundamental economic questions.  Central planners decide what will be made, how, and for whom. 

B is not correct because traditional economies do not have large markets.  Traditional economies tend to be run on a very small scale, mostly through barter and trade.  If most transactions are conducted using money, the economy is not traditional.

D is not correct because it is traditional economies, not command economies, that rely on long-standing practices.  Traditional economies are, as their name implies, based on tradition.  Command economies do what the government says, not what tradition says.

C is correct because people in market economies act in their own self-interest.  Consumers try to buy the best goods at the lowest prices.  Producers try to make the maximum possible profit when they sell.  In a market economy, everyone does what is best for them, not what the government says or what tradition says.

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