Theory question 107
Economic SystemsSection B (answer four questions only from this section)
(a) What is a market economy?
(b) Highlight the features of a market economy.
Show the model answer
Model answer
(a) A market economy (capitalism / free enterprise) is an economic system in which the means of production are privately owned and decisions on what, how and for whom to produce are made through the price mechanism, with little government intervention.
(b) Private ownership of property and means of production.
Price mechanism allocates resources.
Profit motive drives producers.
Consumer sovereignty.
Free competition among producers.
Freedom of enterprise and choice of occupation.
Minimal government intervention.
Income inequality.
Explanation
List and briefly explain at least five features.