1.1.5

Question 1

Three basic economic questions.

Answer 1

1. What and how much to produce?
2. How to produce?
3. For whom to produce?

Question 2

What and how much to produce?

Answer 2

Consumer Soverignty (undermines allocation of resources) impacts the market forces, which determins what and how much is produced.

Question 3

How to produce?

Answer 3

Using cost-effective method whereby maximisation of cost is evident

Question 4

For whom to produce

Answer 4

Refers to goverment intervention disturbing the allocation of resources.

Question 5

Types of economic systems that help to answer those questions

Answer 5

1. Pure market economy
2. planned eocnonmy
3. Mixed economy

Question 6

Pure Market economy

Answer 6

All economic decsions relating to the production and subseqeunt distirbution are made by reference from only the price system

Question 7

Pure market economy:
What to produce

Answer 7

Allocative efficiency is used to determine the types of goods and services produced in this economy

Question 8

Pure market econonmy:
How to produce

Answer 8

Using cost-effective methods to yield the best product

Question 9

Pure Market economy:
For whom to produce

Answer 9

Higher-income earners:
Buy more
Lower-income earners:
Buy less
Therefore, buyers and sellers affect the material living standards of higher-income earners and lower

Question 10

Planned economies

Answer 10

All economic decisons relating to hte production and subeqeunt distrbution are made by reference from only the goverment

Question 11

Planned economies:
What to produce?

Answer 11

Only goverment affects what is produced.

Question 12

Planned economies:
How to produce

Answer 12

Do not effectively employ lower-cost method rather lower costs to accomodate to those in need

Question 13

Mixed economies

Answer 13

Most econmic decsisons and subsqeunt distbirution are made by reference from mainly the market. In addition, the level of wellbineg is important to an extent so goverment intervention can occur.

Question 14

Mixed economies:
What to produce

Answer 14

Similarly, a pure market economy satisfying society’s needs and wants is greatly emphasised. However, the level of wellbeing is important so goverment intervention can occur. For example, diseases associated with a good or service may result in the goverment re-directing the resources of both the consumer and producer.

Question 15

Mixed economies:
How to produce

Answer 15

Everyone within this econonmy utilises the use of the cost-effective method (producing at a low cost)

Question 16

Mixed economies:
For whom to produce

Answer 16

Those with higher incomes can buy more. However, the goverment may intervene by means of taxing those who earn higher income to reduce income inequality.

Question 17

Planned economy:

For whom to produce?

Answer 17

With the intention to increase all living standards within the economy the government ensures that:
1. Income inequality is reduced
2. People have access to basic needs like healthcare through reducing their price to a minimum or at no cost