In a capitalist economy, the ultimate answer to the economic question "What to produce?" is determined primarily by private individuals and businesses acting through the market mechanism. Specifically:
- Private owners of capital decide what goods and services to produce based on their own investment and profit motives. They allocate resources to produce items they believe will be profitable in the marketplace
- Consumer demand plays a crucial role because businesses produce goods and services that consumers are willing to buy. The forces of supply and demand in the market guide producers on what to supply, as prices and sales reflect consumer preferences
- The price mechanism in the market acts as a signal for producers, indicating which goods are in demand and should be produced, and which are not profitable and should be reduced or eliminated
- This decentralized decision-making contrasts with planned economies, where a central authority determines production. In capitalism, decisions are made autonomously by private owners competing in the market
In summary, the combination of private ownership of the means of production and consumer preferences expressed through market demand ultimately determines what is produced in a capitalist economy
