In a capitalist economy, what mainly decides which goods will be produced?
- A.A five year plan prepared by the state
- B.The price mechanism and the profit motive
- C.The decisions of a central bank
- D.Orders of the planning authority
Correct answer
Explanation
The correct answer is B. In a capitalist or market economy the means of production are privately owned and nobody issues orders about production. When buyers want a good its price rises, profits in that line rise, and producers move land, labour and capital towards it; when demand falls the price falls and resources move away. Adam Smith called this silent working of prices the invisible hand. Option A is wrong because a five year plan belongs to a socialist or centrally planned economy, and in India to a mixed one. Option C is wrong because a central bank controls money and credit and does not decide which goods are made. Option D is wrong because a planning authority allocating materials and fixing targets is the method of a command economy, the opposite of capitalism.
Read the full article: Types of Economies: Capitalist, Socialist and Mixed
Practice Questions
View allThe book An Inquiry into the Nature and Causes of the Wealth of Nations, which gave the idea of the invisible hand, was written by:
- A.Karl Marx
- B.Adam Smith
- C.J. M. Keynes
- D.David Ricardo
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The Scottish economist published the Wealth of Nations in 1776 and is called the father of economics; he argued that if each person pursues his own interest in a free market, an invisible hand guides the outcome to the good of society, which became the classic defence of capitalism and…
Read the full explanation →An economy in which the public sector and the private sector exist side by side is called:
- A.Capitalist economy
- B.Socialist economy
- C.Mixed economy
- D.Command economy
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In such an economy the state owns and runs the industries that need very large capital or serve strategic and social purposes, regulates the rest by law, and leaves ordinary production to private enterprise, while keeping responsibility for welfare and employment.
Read the full explanation →Das Kapital, one of the foundation texts of socialist economics, was written by:
- A.Friedrich Engels
- B.Karl Marx
- C.Robert Owen
- D.V. I. Lenin
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Marx published the first volume of Das Kapital in 1867; it analysed capital, surplus value and the exploitation of labour and became the basic text of what is called scientific socialism.
Read the full explanation →Which of the following is not one of the central problems of an economy?
- A.What to produce
- B.How to produce
- C.For whom to produce
- D.Who will rule the country
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Because resources are scarce and wants are unlimited, every economy must answer three questions, and these are called its central problems: what goods and in what quantity to produce, how to produce them, that is by which technique and combination of labour and capital, and for whom to produce, that…
Read the full explanation →Under the Industrial Policy Resolution of 1956, the industries listed in Schedule A were to be developed by:
- A.The state alone
- B.Private enterprise alone
- C.Foreign companies
- D.Cooperative societies only
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The Industrial Policy Resolution of 1956 followed the Congress session at Avadi that called for a socialistic pattern of society, and it gave the public sector the commanding role.
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