Study the statements carefully and answer.
Statement 1: In a market system, the central problems regarding how much and what to produce are solved through the coordination of economic activities.
Statement 2: This coordination of economic activities is brought about by the price signals.
Choose the correct option.

Both the statements are true.

The Correct Answer is option 1: Both the statements are true.

Explanation:

• Statement 1: In a market system, the central economic problems of how much to produce and what to produce are indeed solved through the coordination of economic activities. This coordination occurs as producers respond to consumer demand signals and adjust production accordingly.
• Statement 2: Price signals play a crucial role in bringing about this coordination of economic activities. Prices convey information about consumer preferences, scarcity of resources, and relative costs, guiding producers in their decision-making processes.

In a market system, if the buyers demand more of a certain good, the price of that good will rise. This signals to the producers of that good that the society as a whole wants more of that good than is currently being produced and the producers of the good, in their turn, are likely to increase their production. 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.