GCE Economics 2013 Theory — Question 7

Model answer

(i) Aim of production: a capitalist economy is primarily aimed at maximising profit, while a socialist economy is primarily aimed at promoting the welfare of members of the public through equitable allocation of resources or wealth/income. (ii) Consumer sovereignty: under capitalism, consumers are regarded as "Kings", i.e. they determine what producers will produce. Under socialism this is absent, as government determines what goods and services are produced based on the needs of society. (iii) Competition: capitalism encourages a high level of competition, promoting innovation, efficiency and consumer choice. Socialism does not encourage competition, promoting instead cooperation and collective ownership of the means of production.