1.2 The allocation of resoruces

Question 1

How are resources allocated in a market economy?

Answer 1

Market forces of supply and demand allocate scarce resources.
-What to produce: determined by what the consumer prefers
-How to produce it: producers seek profits
-For whom to produce it: whoever has the greatest purchasing power in the
economy, and is therefore able to buy the good

Question 2

How are resources allocated in a planned economy?

Answer 2

Government allocates all of the scarce resources in an economy.
-What to produce: determined by what the government prefers
-How to produce it: governments and their employees.
For whom to produce it: who the government prefers

Question 3

How are resources allocated in a mixed economy?

Answer 3

Market is controlled by both the government and the forces of supply and demand.
- What to produce: determined by both consumer and government preferences
- How to produce it: determined by producers making profits and the government
- For whom to produce it: both who the government prefers and the purchasing power of private individuals.

Question 4

Explain productive efficiency?

Answer 4

-When resources are used to give maximum possible output at lowest possible cost.
-Helps maximise consumer welfare, but can be wasteful if goods and services consumers aren’t produced

Question 5

What are the conditions required for productive? Draw the diagram.

Answer 5

• Occurs when firms minimise their average total costs.
• When firms produce at the lowest point on average cost curve.
  -MC= AC

Question 6

Explain allocative efficieny

Answer 6

• When resources are allocated to best interests of society.
• There is maximum social welfare and maximum utility.

Question 7

Where does allocative efficiency occur on a diagram?

Answer 7

-P=MC