Economic systems

Question 1

Subsistence economy: Key Characteristics

Answer 1

• Producers are self-sufficient (They produce enough for themselves and their family to survive)
• Not aiming to make a profit;
• Money is not used at all
• What to produce? Depends on what natural resources are available
• How to Produce? Production is usually shared, and involves natural and labour resources
• For Whom to Produce? – Family only
• Very few in existence (Lower income countries, poverty stricken regions)

Question 2

Market Capitalist Economy: Key Characteristics

Answer 2

• Producers exchange goods and services with consumers in return for money
• Takes place in a “market”
• Most resources (labour, natural and capital) are owned by individuals
• What to produce? - Producers decide based on what consumers want
• How to produce? - The producer decides the most cost-effective method of production
• For whom to produce? - Determined by the products desired by those who have money to pay.
• Most common economic system

Question 3

Planned Capitalist Economy: Key Characteristics

Answer 3

• Individuals / businesses own the resources
• The government decides ‘what to produce’; ‘how to produce’; ‘for whom to produce’
• Currently this economic type does not exist

Question 4

Market Socialist Economy: key characteristics

Answer 4

• What to produce? - Producers decide based on what consumers want
• How to produce? - The producer decides the most cost-effective method of production
• For whom to produce? - Determined by the products desired by those who have money to pay.
• However, the state / the government owns most resources on behalf of the people
• Former Socialist Federal Republic of Yugoslavia is an example of this type of economy

Question 5

Planned Socialist Economy: key characteristics

Answer 5

• Government determines ‘what to produce’; ‘how to produce’ and ‘for whom to produce’
• It is planned according to the government’s long- and short-term goals
• Majority of resources are owned by the country
• Emphasis may not be on producing what consumers want but on what the government sees as desirable (e.g. defence)
• Shortages of consumer goods may occur
• North Korea is an example