“All economic systems have three basic questions to ask: WHAT to produce, HOW to produce and in what quantities, and WHO receives the output of production.” Wikipedia

These are the very questions business owners must ask themselves as well, because all businesses are embedded in local, national, and global economic systems.

Let’s have a look in more detail at economic systems.


Required reading

  1. Read Economic Systems .
  2. You may also find this resource helpful: Economic System on Wikipedia. Don’t worry too much about the long list of different types of economic systems (unless, of course, you are particularly interested in them!) – focus on the key points for the moment.



Find out how much you have learned.

  • In a __________, the government exerts control over the allocation and distribution of all or some goods and services.
    • Planned system
      • That’s right.
    • Free market system
      • Incorrect. A government does not intervene in a free market system.
  • In a __________, competition dictates how goods and services will be allocated.
    • Planned system
      • Incorrect. In this kind of system, the government generally decides what will be produced and what the prices will be.
    • Free market system
      • Yes, well done.
  • The economic system in which most businesses are owned and operated by individuals is the free market system, also known as __________.
    • Communism
      • Incorrect. A communist system is based on everyone having common ownership, rather than private ownership .
    • Capitalism
      • Correct.


Which economic system is in place in your country? What does that mean in simple terms? How might this impact on your own business idea?
For example:

  • My country, France, uses the … system. This means…
  • My business idea will work well in this system, because …
  • This system could affect my own business idea by…

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