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QUESTION 2 In a free market economic system. scarce resources are allocated through the price mechanism where the preferences and spending decisions of consumers and

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QUESTION 2 In a free market economic system. scarce resources are allocated through the price mechanism where the preferences and spending decisions of consumers and the supply decisions of businesses come together to determine equilibrium prices. The free market works through price signals. when demand is high, the potential prot from supplying to a market rises, leading to an expansion in supply to meet rising demand from consumers. Day by day, the free market mechanism remains a tremendously powerful device for determining how resources are allocated among competing ends. Most of the government intervene in the free market. The government may choose to intenrene in the price mechanism largely on the grounds of wanting to change the allocation of resources and achieve what they perceive to be an improvement in economic and social welfare. All governments of every political persuasion intervene in the economy to inuence the allocation of scarce resources among competing uses Analyze how government intervention in free market can correct the market failure and a more equitable distribution of income and wealth can be achieve. (15 Marks) [Total]: 15 MARKS]

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