In a free market economy, the rationing of scarce goods is done principally by?

Step 1: Analyze the question The question asks who or what decides how scarce goods are shared out (rationed) in a free market economy.

Step 2: Explain the concept Scarcity means resources are limited while wants are unlimited, so some method must decide who gets what. Different economic systems do this differently:

• Command (planned) economy: the government rations goods, through quotas, controls, and allocation.
• Free market economy: the price mechanism (the forces of demand and supply) does the rationing. No central authority decides.

Step 3: Work through it In a free market:

• When a good becomes scarce, its price rises. Only those who are willing and able to pay can buy it, so those who value it most get it.
• When a good is plentiful, its price falls, and more people can afford it.
• Prices therefore act as signals and as a rationing tool, moving to balance demand and supply at the equilibrium price.

Checking the options:

• A. The government: this is the case in a command economy, not a free market.
• B. Business organizations: they produce and supply goods, but they don't ration scarcity. They respond to prices.
• C. The price mechanism: correct. It allocates scarce goods automatically.
• D. Consumers: they influence demand, but the rationing itself is done through prices.

Step 4: Answer The correct option is C. the price mechanism.

Step 5: Exam tip Remember the link: Free market = price mechanism; Command economy = government. If a JAMB question mentions a "free market" or "market economy" and asks how resources are allocated, think "price mechanism" or "forces of demand and supply."