An economic system in which the decision on what and how to produce is determined by the individual is called

Step 1: Analyze the question The question asks for the economic system where individuals (not the government or tradition) decide what to produce and how to produce it.

Step 2: Explain the concept Economic systems answer the basic questions of what, how, and for whom to produce. Who answers them defines the system:

• Capitalism (free enterprise or market economy): Individuals and private firms own the factors of production and decide what and how to produce. The aim is profit, and prices are set by demand and supply.
• Communism: The state owns all means of production and makes all the decisions.
• Socialism: The government owns or controls the major means of production and plans the economy for equitable distribution.
• Traditionalism: Decisions follow customs, culture and inherited practices, as in some rural communities.
• Welfarism: This is a policy approach in which the state provides social support. It is not a system defined by who makes production decisions.

Step 3: Apply to the question The key phrase is "determined by the individual". Only capitalism leaves production decisions to private individuals and firms, guided by the price mechanism and the profit motive.

• B and C put the decisions in the hands of the state.
• D relies on custom, not individual choice.
• E is not a production system.

Step 4: Answer The correct option is A. capitalism.

Exam tip: Match the decision-maker to the system:

• Individuals → Capitalism
• State → Socialism/Communism
• Custom → Traditionalism
• Both individuals and state → Mixed economy

Whenever you see "private ownership," "individual decision," "profit motive," or "price mechanism," think capitalism.