IAS Economy Practice Question . 11

Consider the following statements in context with the Free Market Economy:
1. The role of market forces and competition is eliminated by law
2. There is a high degree of competition in both commodity and factor markets
3. Private gains are the main motivating and guiding force for carrying out economic activities
Which among the above is/ are correct statements?
[A]Only 2 & 3 are correct
[B]Only 1 & 3 are correct
[C]Only 3 is correct
[D]All are incorrect

Answer: Only 2 & 3 are correct
The first statement is linked to the Government Controlled Economy. The government-controlled economies are also called as Command, Centrally planned or Socialist economies.
Such economies are, in contradistinction to the free enterprise economies, controlled, regulated and managed by the government agencies.The other features of a pure socialist economy are:

  • Means of production are owned by the society or by the state in the name of the community – private ownership of factors and property is abolished
  • Social welfare is the guiding factor for economic activities – private gains, motivations and initiatives are absent,
  • Freedom of choice for the consumers is curbed to what society can afford for all, and
  • The role of market forces and competition is eliminated by law
  • .

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