1.1.6

Question 1

Command/planned/centrally planned economy

Answer 1

An economic system where a government, through a planning process allocates resources in society

Question 2

Economic system

Answer 2

A complex network or economic agents, organisations, institutions, and their social and legal interrelationships which allocates resources

Question 3

Free marker/capitalist/market economy

Answer 3

Where the market mechanism is used to allocate resources

Question 4

Mixed economy

Answer 4

An economy where resources are allocated in part through the market mechanism and in part through government planning process

Question 5

3 key questions around allocation

Answer 5

WHAT is to be produced, HOW it is to be produced, and for WHOM is it to be produced?

Question 6

Individuals

Answer 6

Consumers and workers

Question 7

Groups

Answer 7

Examples include firms, trade unions (represent labour collectively), political parties, households, charities

Question 8

Government

Answer 8

Examples include local authorities, national parliaments, European Commission

Question 9

Market mechanism

Answer 9

The means by which resources are allocated through the forces of supply and demand as buyers and sellers come together in markets. Prices send the signals and provide incentives to ration and allocate

Question 10

Planning

Answer 10

The allocation of resources through administrative decisions

Question 11

Innovation

Answer 11

The creation of new markets (product) and/or the creation of new ways of production (process)

Question 11

Efficiency

Answer 11

In general terms, how well scarce resources are used. Can be split into allocative, productive, x-efficient and dynamic

Question 12

Economic growth

Answer 12

Increases in the productive potential of an economy (long run) or closing of a negative output gap as previously unemployed resources are brought into production (short run)

Question 13

Distribution of income and wealth

Answer 13

The way in which income and wealth are shared between different groups in a population

Question 14

Risk

Answer 14

The willingness to accept that hoped for outcomes will not occur

Question 14

Adam Smith

Answer 14

Explained how the “invisible hand” allocates resources in a market economy. Often seen as an advocate of free markers but equally recognised that individuals and firms could attempt to distort markets for their own gain and recognised the state had an important role to play

Question 15

Friedrich Hayek

Answer 15

20th Century Austrian economist pro free market economist. He argued that central planning by governments led to the will of a small minority being imposed on the whole of society

Question 16

Karl Marx

Answer 16

A 19th Century German economist in favour of command economies where the state owns most resources