In a market economy, economic activity is primarily guided by d) prices and self interest. This means that individual consumers and businesses make decisions based on their personal preferences and the prices of goods and services in the market.
In such an economy, prices act as signals to both consumers and producers. When demand for a product increases, prices tend to rise, encouraging producers to supply more of that product. Conversely, if demand decreases, prices may fall, which can lead to reduced supply. This interaction creates a dynamic system where resources are allocated efficiently based on the prevailing market conditions.
Furthermore, self-interest plays a crucial role. Individuals and businesses strive to improve their own situation, which can lead to innovation and competition, driving overall economic growth. Unlike economies that rely on government control or central planning, a market economy thrives on the voluntary exchanges between parties, responding to the ever-changing needs and desires of society.