In a capitalist economy resources are allocated based on the laws of supply and demand which act as an invisible hand guiding resource allocation. Supply refers to the quantity of a product or service that businesses are willing to produce at a given price. The higher the price, the more businesses will produce. Demand refers to the quantity of a product or service that people are willing to buy at any given price. The lower the price, the more people will buy. Supply and demand intersect at an equilibrium point which sets the price of a product or service as well as the amount supplied and demanded.

Market structures range from pure monopolies, where there is only one supplier of a given product or service, to pure competition where there is for all practical purposes an infinite number of suppliers of the good or service. In purely competitive markets, like farming, competition only occurs with respect to costs, and the quantity a supplier can produce. There is no price competition, as each supplier only receives the market price for their product.

Multiple Choice Question The product or service’s demand point In a capitalist economy, the amount of a product or service produced is dictated by: The product or service’s demand point The product or service’s supply point The equilibrium point for the product or service Government central planning