In a free market economy available resources ar... - JAMB Economics 1995 Question

In a free market economy, the price system plays the most critical role in allocating resources efficiently. Here's why:

• Price System: The price system uses the forces of supply and demand to determine prices. These prices then signal to producers and consumers what to produce, how much to produce, and how much to consume, leading to an efficient allocation of resources.
• Other Options:
  • A. Development planning: This is a characteristic of a planned or mixed economy.
  • B. Strategic planning: This is a tool used by businesses, but not the primary mechanism for resource allocation in a free market.
  • C. Capital budgeting: This is a financial tool used by businesses to make investment decisions, not the primary resource allocation mechanism.