Who makes business decisions in the market economy?
In a market economy, individuals, based on the principles of supply and demand, make business decisions. Supply and demand determine what products will be produced, how many will be produced, and what the price will be. If the price is too high, there will be a surplus of goods. This will cause the prices and the quantity produced to drop. If the price is too low, there will be a shortage of products. This will cause the prices to rise, and the quantity produced to increase.
Supply and demand determine how much investment will occur in the economy. If the rate is return and the opportunity for making a profit are low, less investment should occur. If the rate of return and the opportunity for making a profit are high, more investment should occur.
The forces of supply and demand help individuals make economic decisions in a market economy.
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