In a market economy,
a. supply and demand determine prices and prices, in turn, allocate the economy’s scarce resources.
b. the allocation of scarce resources determines prices and prices, in turn, determine supply and demand.
c. supply determines demand and demand, in turn, determines prices.
d. demand determines supply and supply, in turn, determines prices.

b. the allocation of scarce resources determines prices and prices, in turn, determine supply and demand.

Explanation:

In a market economy, the scarcer a good, the higher its price. This means that scarcity determines the price of goods and services. Price, in turn, is the vector of adjustment between supply and demand. When the price is high, there is a stimulus to increase supply as the prospect of profit from suppliers increases. However, rising prices are a disincentive to consumption, so rising prices lead to decreased demand. Similarly, when price decreases, demand tends to increase and supply tends to decrease. Thus, price adjusts the interaction between supply and demand of an economy. At some point, there will be a price at which supply will equal demand, this will be the equilibrium price.

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