Consider the following statements about a market system:
(A) For the smooth functioning of any system, there must be coordination among its different parts.
(B) The price of a good is mutually agreed upon by the buyers and the sellers.
(C) When buyers demand less of a good, its price usually rises.
(D) Prices of goods send important information to all the individuals across the market.
(E) A central authority fixes how much of each good is to be produced.
Which of the above statements are correct?
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (D) only
In a market system, prices do the job of coordinating what millions of people do.
(A) For the smooth functioning of any system, there must be coordination among its different parts. — Correct. Without coordination there can be chaos.
(B) The price of a good is mutually agreed upon by the buyers and the sellers. — Correct. Exchanges take place at a price both sides agree on.
(C) When buyers demand less of a good, its price usually rises. — Incorrect. When buyers want less, the price falls. A price rises when buyers demand more.
(D) Prices of goods send important information to all the individuals across the market. — Correct. Price changes tell producers what society wants more or less of.
(E) A central authority fixes how much of each good is to be produced. — Incorrect. In a market system, what and how much to produce is settled by price signals, not by a central authority.
NCERT (2026-27): “1.3.2 The Market Economy … For the smooth functioning of any system, it is imperative that there is coordination in the activities of the different constituent parts of the system. Otherwise, there can be chaos. …” “In a market system, all goods or services come with a price (which is mutually agreed upon by the buyers and sellers) at which the exchanges take place. The price reflects, on an average, the society’s valuation of the good or service in question. If the buyers demand more of a certain good, the price of that good will rise. … In this way, prices of goods and services send important information to all the individuals across the market and help achieve coordination in a market system. Thus, in a market system, the central problems regarding how much and what to produce are solved through the coordination of economic activities brought about by the price signals.” |