Allocation of Resources

An economic system is a national economy that answers the questions that decide the allocation of resources.

1. What to produce?

What goods and services to produce.

2. How to produce?

What tools, resources and skills do they need?

3. For whom to produce?

Scarcity means it's impossible to satisfy the wants of every person. Each economy must determine who gets the goods and services or whose needs and wants to satisfy.

How is resource allocation decided?

Free Market Economic System: the action of individual consumers, firms and households in the private sector which decide the allocation of resources. There is no government involvement so taxes or public spending.

Planned Economic System: the actions and decisions of the government/public sector which determines the allocation of resources.

Mixed Economy: the combination of public and private sectors which determine the allocation of resources.