CMA Foundation · Fundamentals of Business Economics and Management · The Fundamentals of Economics
Which feature is characteristic of a pure capitalist economy but NOT of a centrally planned economy?
The price mechanism guiding resource allocation, together with private ownership and the profit motive, is distinctive of a pure capitalist economy. Scarcity and the need to choose what to produce exist in all systems, and central planning belongs to the socialist model.
- AScarcity of resources relative to wants
- BNeed to decide what to produce
- CPrice mechanism guiding allocation of resources, with private ownership and profit motiveCorrect
- DAllocation of resources by a central planning authority
Explanation
Scarcity and the basic choice of what to produce exist in every system, so options A and B are common to both. Allocation by a central authority is the planned economy's feature, so D is wrong. Price mechanism with private ownership and profit motive is distinctive of capitalism.
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