Consider the following statements regarding the "Market System": 1. All goods and services come with a price which is mutually agreed upon by buyers and sellers. 2. Prices in a market system fail to convey any information to the individuals. 3. The market system requires a central authority to coordinate the activities of millions of individuals. Which of the statements given above is/are correct?

The correct option is 1 only Explanation A market system, often referred to as a capitalist or free-market economy, is an economic structure where decisions regarding investment, production, and distribution are guided by the price signals created by the forces of supply and demand. It stands in contrast to a centrally planned economy. Statement-wise Analysis: - Statement 1 is Correct: In a market system, the price of goods and services is determined by the mutual interaction of buyers and sellers. The equilibrium price is reached where the quantity demanded equals the quantity supplied. - Statement 2 is Incorrect: Prices in a market system serve as crucial information signals. They convey information about the relative scarcity of goods and consumer preferences. For instance, a rise in price signals producers to increase supply and consumers to ration their use, thereby coordinating economic activity efficiently. - Statement 3 is Incorrect: The market system does not require a central authority to coordinate the activities of individuals. Instead, it relies on decentralized decision-making and the "invisible hand" mechanism. It is the Centrally Planned (or Command) Economy that relies on a central authority (government) to make decisions regarding production and distribution. Key Takeaway: The defining feature of a market system is the decentralized coordination of economic activities through the price mechanism, without the intervention of a central planning authority.

NCERT Class 12 Economics — Chapter 1: Introduction

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Consider the following statements regarding the "Market System":

All goods and services come with a price which is mutually agreed upon by buyers and sellers.
Prices in a market system fail to convey any information to the individuals.
The market system requires a central authority to coordinate the activities of millions of individuals.

Which of the statements given above is/are correct?

Official previous-year question

Verified 1 Aug 2026.

Options

A2 only
B1 and 3 only
C1 only
D1, 2 and 3

Did you get this right?

Solution

The correct option is

1 only

Explanation

A market system, often referred to as a capitalist or free-market economy, is an economic structure where decisions regarding investment, production, and distribution are guided by the price signals created by the forces of supply and demand. It stands in contrast to a centrally planned economy.

Statement-wise Analysis:

Statement 1 is Correct: In a market system, the price of goods and services is determined by the mutual interaction of buyers and sellers. The equilibrium price is reached where the quantity demanded equals the quantity supplied.
Statement 2 is Incorrect: Prices in a market system serve as crucial information signals. They convey information about the relative scarcity of goods and consumer preferences. For instance, a rise in price signals producers to increase supply and consumers to ration their use, thereby coordinating economic activity efficiently.
Statement 3 is Incorrect: The market system does not require a central authority to coordinate the activities of individuals. Instead, it relies on decentralized decision-making and the "invisible hand" mechanism. It is the Centrally Planned (or Command) Economy that relies on a central authority (government) to make decisions regarding production and distribution.

Key Takeaway:
The defining feature of a market system is the decentralized coordination of economic activities through the price mechanism, without the intervention of a central planning authority.

Your note

More from Chapter 1: Introduction

Consider the following statements regarding the "Mixed Economy": 1. It is an economy where both the government and the market play a role in economic activities. 2. It is an economy where all decisions are taken solely by the market. 3. India is cited as an example of a mixed economy. Which of the statements given above is/are correct?

easy

Consider the following statements regarding the fundamental nature of an economy: 1. Individuals in a society possess limited resources compared to their needs. 2. The scarcity of resources is a phenomenon faced by individuals but not by the society as a whole. 3. Compatibility between what people collectively want and what they produce is essential for an economy. Which of the statements given above is/are correct?

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With reference to the basic economic activities, consider the following statements: 1. Production, exchange, and consumption are considered the basic economic activities of life. 2. The problem of choice arises primarily because resources have single, specific usages. Which of the statements given above is/are correct?

easy

Consider the following statements regarding the "Central Problems of an Economy": 1. The problem of "What is produced" is unrelated to the quantity of goods to be produced. 2. The problem of "How are these goods produced" relates to the choice of technology to be adopted. 3. The problem of "For whom are these goods produced" involves determining the distribution of final goods among individuals. Which of the statements given above is/are correct?

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Consider the following statements regarding the allocation of resources: 1. In a market economy, allocation is determined solely by the central planning authority. 2. Allocation of resources refers to how much of which resource is devoted to the production of each good. 3. Allocation of resources has no impact on the combination of goods and services produced. Which of the statements given above is/are correct?

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Keep practising Chapter 1: Introduction

Work through every question from this NCERT chapter.

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The correct option is

1 only

Explanation

Statement-wise Analysis:

Statement 1 is Correct: In a market system, the price of goods and services is determined by the mutual interaction of buyers and sellers. The equilibrium price is reached where the quantity demanded equals the quantity supplied.
Statement 2 is Incorrect: Prices in a market system serve as crucial information signals. They convey information about the relative scarcity of goods and consumer preferences. For instance, a rise in price signals producers to increase supply and consumers to ration their use, thereby coordinating economic activity efficiently.
Statement 3 is Incorrect: The market system does not require a central authority to coordinate the activities of individuals. Instead, it relies on decentralized decision-making and the "invisible hand" mechanism. It is the Centrally Planned (or Command) Economy that relies on a central authority (government) to make decisions regarding production and distribution.