The correct option is 1 and 3 only.
Explanation
Economic systems are organized based on how a society answers the fundamental questions of what to produce, how to produce, and for whom to produce. The two primary models for organizing economic activities are the Market Economy (Capitalism) and the Centrally Planned Economy (Socialism).
Statement-wise Analysis:
- Statement 1 is Correct: The United States of America is often cited as a prime example of a capitalist or market economy. In such a system, the means of production are predominantly owned by private individuals, and economic decisions are driven by market forces. Consequently, the direct role of the government in economic activities is minimal compared to socialist or mixed economies.
- Statement 2 is Incorrect: In a market economy, prices are determined by the market mechanism, specifically the interaction of supply and demand. The government does not decide prices; rather, prices act as signals for producers and consumers. Government control over prices is a characteristic of a centrally planned economy.
- Statement 3 is Correct: A centrally planned economy is defined by the central role of the government or a planning authority. This authority makes all major decisions regarding production, distribution, and consumption to solve basic economic problems, aiming to achieve social welfare rather than profit maximization.
Key Takeaway:
Market economies rely on the price mechanism and private enterprise (e.g., USA), whereas centrally planned economies rely on government directives and public ownership to address fundamental economic problems.