Read the following statements - Assertion (A) and Reason (R):
Assertion(A): In a market economy, prices of goods and services send important information across the market and help in solving the central problems of 'what to produce' and 'how much to produce'.
Reasoning(R): In a market economy, forces of demand and supply operate freely. If the buyers demand more of a particular commodity, the price of that commodity rises. This signals to the producers of that commodity that the demand for that commodity is more than the quantity being currently produced. The producers, in turn, are likely to increase the production of that commodity.
From the given alternatives choose the correct one:
Answer & explanation
Correct answer: option 1
In a market economy, the forces of the demand and supply operate freely. They tend to solve the problem of "What to produce" and "how much to produce" by providing price signals on the basis of which the producers decide what commodities to be produced and in what quantities.