Australia’s market economy is one that primarily driven by market forces, but with some government intervention that is ultimately designed to take account of market imperfections (e.g. market ) that inhibit the achievement of economic . With respect to the three basic economic questions of what (and how much) to produce, how to produce and for whom to produce, the Australian economy answers these three questions via a combination of the ‘ hand’ (i.e. the forces of demand and supply) as well as decision making.

With respect to what and how much to produce, it is mainly the demands of , combined with the ability of to meet this demand, that determines what goods and services will be produced and in what quantities. However, the government does play a role via its determination to manipulate the market such that it accounts for market failures and/or ensure that certain , goods and services are provided in the economy . For example, the government provides defence services that otherwise would not be produced in a market, and levies taxes on the production of some products with negative externalities in consumption or production.

With respect to how to produce, again the market will ultimately decide the answer to this question, with producers’ being heavily influenced by the prices of the various factors of production (including labour and capital). For example, lower prices of technology or capital will encourage producers to substitute away from labour and into capital. The government also plays a role, not only as a producer itself, but also via various laws and regulations that influence the relative cost of factors of (e.g. the various laws designed to protect labour that raise the relative of labour and encourage greater use of capital).

In Australia, the answer to the ‘for whom question is largely’ determined by who can afford to buy what is produced, which is mostly determined by markets once again to the extent that incomes are determined mostly by a person’s economic contribution to the production process (e.g. the wages one receives from or from entrepreneurial activity). However, the government does play an role via its determination to achieve a more equitable distribution of income (e.g. via taxes and transfer payments).