In a market system, who determines what is produced?
In free markets (where there is no government interference), it is the consumers that fundamentally determine what is produced, because businesses respond to consumers’ demand for products. When consumers change their preferences, businesses react to those changes by changing what they produce. For example, when many consumers bought DVD players, the demand for movies on DVDs increased and the demand for movies on videotape decreased. Movie studios put more of their movies, even old movies, onto DVDs, and rental outfits started stocking more DVDs and fewer videotapes. • Why do different people earn different incomes and why do different jobs pay different wages? Different jobs require different sets of skills, knowledge, and abilities, as well as different risks of injury, resulting in many different labor markets. In each labor market, the demand and supply of a specific type of labor determine the equilibrium wage rate. Depending on the demand and supply conditions in different labor
