Question

Which does not fit with the others? (LO2) a) competition b) government planning and regulation c) the invisible hand d) the price mechanism

Short answer

The option that does not fit with the others is (b) government planning and regulation, as it involves government intervention in the economy, while the other options emphasize the effectiveness and efficiency of a free market system without direct government involvement.

Step-by-step solution

1. Understand Each Option

To determine which option does not fit with the others, we need to first understand what each option means: a) Competition: Competition in economics refers to the rivalry between firms in the market in order to gain profit and market share. It encourages firms to improve their products or services and better cater to the needs and preferences of their customers. b) Government planning and regulation: This term refers to the rules and guidelines set by the government in order to control, monitor, and manage the economy. These regulations aim to maintain economic stability and protect consumers. c) The invisible hand: This concept, introduced by the economist Adam Smith, describes the unintended social benefits that result from individual actions in a free market. The invisible hand suggests that when people independently pursue their own self-interest, the market will allocate resources efficiently without the need for direct government intervention. d) The price mechanism: The price mechanism is an economic concept that explains how prices help to allocate resources efficiently. In a free market, prices act as signals that help firms and consumers make better decisions, leading them to allocate resources appropriately.

2. Analyze the Similarities and Differences

Now that we have a basic understanding of each term, let's analyze their similarities and differences. From our descriptions, we can see that competition, the invisible hand, and the price mechanism are all linked to the allocation of resources in the market, and they all emphasize a free market economy. On the other hand, government planning and regulation is a concept that involves government intervention in the economy, which can be seen as a contrasting concept to the others, as they emphasize the efficiency of a free market with limited government intervention.

3. Identify the Option that Does Not Fit

Based on our analysis, we can now identify the option that does not fit with the others: b) Government planning and regulation This option differs from the others as it involves government intervention in the economy, while the other options emphasize the effectiveness and efficiency of a free market system without direct government involvement.