The "Informal Defence" of Free Markets Includes the Argument That

question 21

Multiple Choice

The "informal defence" of free markets includes the argument that competitive markets
1) lead to allocative efficiency;
2) provide automatic coordination of the actions of decentralized decision makers;
3) provide a stimulus to innovation and economic growth because of the pursuit of profits.

• A)1 only
• B)2 only
• C)3 only
• D)1 and 2
• E)2 and 3

---

Definitions:

Economic Efficiency

A state where resources are allocated in a way that maximizes the production of goods and services.

External Cost

Uncompensated costs that individuals or firms impose on others outside of market transactions, often associated with pollution.

Pollution Tax

A financial charge imposed on the emission of pollutants, intended to motivate reductions in harmful environmental discharges.