1d) Resource allocation in different economic systems

Question 1

What is a Market economy?

Answer 1

An economic system in which decisions are made by individuals.

Question 2

What is a Planned economy?

Answer 2

An economic system in which decisions are made by the government.

Question 3

What is a Mixed economy?

Answer 3

An economic system in which decisions are made by both the government and individuals.

Question 4

Benefits of a Market Economy

Answer 4

1) Consumer sovereignty, efficient resource allocation.
2) Profit-incentive, innovation, quality.
3) High Competition, lower prices, more efficiency.

Question 5

Drawbacks of a Market Economy

Answer 5

1) Wealth inequality, can lead to social disorder.
2) Formation of monopolies.
3) Inflation, profit incentive.
4) Public goods not provided.

Question 6

Benefits of a Planned Economy

Answer 6

1) High employment, full.
2) Prices on essential goods kept low.
3) Wasteful duplication avoided, reduced wastage

Question 7

Drawbacks of a Planned Economy

Answer 7

1) No incentive, low production
2) Low competition, low innovation
3) Unresponsive to market, creates surplus/shortages.

Question 8

Issues of Transition (Planned to Market).

Answer 8

1) Inflation, no/fewer price controls.
2) Unemployment, profit motive/lower costs.
3) Reduction in welfare services

Question 9

What is the Role of factor enterprise?

Answer 9

1) Risk-takers of production.
2) Organise and combine factors of production.
3) Take profit if business successful.