Question

Given below are two statements: one is labelled as Assertion (A) and the other is labelled as Reason (R). Assertion (A): Incentives and price signals cannot function without proper institutions for economic activity to flourish. Reason (R): Markets require institutions because they are not self-regulating, self-stabilizing or self-legitimizing. In the light of the above statements, choose the most appropriate answer from the options given below.

• A. Both (A) and (R) are correct and (R) is the correct explanation of (A).
• B. Both (A) and (R) are correct but (R) is not the correct explanation of (A).
• C. (A) is correct but (R) is not correct.
• D. (A) is not correct but (R) is correct.

Hint:

Remember the role of institutions in an economy:
• Protect property rights.
• Enforce contracts.
• Maintain law and order.
• Regulate markets.
• Reduce transaction costs.
• Provide macroeconomic stability. Key Idea: \[ \boxed{ \text{Markets + Strong Institutions} = \text{Efficient Economic Development} } \] Markets alone cannot ensure efficient allocation of resources without an appropriate institutional framework.

Answer 1

The Correct Option is A