In a Pure Capitalist Economy, What Is Production Determined By?


Quick Answer

In a purely capitalistic economy, production is determined by market demand, without government interference. Producers produce whatever consumers are willing and able to buy. Prices are determined by the laws of supply and demand.

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Full Answer

Capitalism is an economic system characterized by private ownership of the means of production, distribution and exchange of wealth. Production decisions are based on the free market, which is guided by what Scottish philosopher and economist Adam Smith called the "invisible hand." The "invisible hand" allocates resources according to market demand. The opposite of a purely capitalistic economy is a planned or controlled economy, in which economic decisions are made by government.

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