2.9 Market economic system

Question 1

What is a market economic system

Answer 1

Actions of individual consumers, households and firms influence the allocation of resources. No public sector or govt. intervention

Question 2

what is the price mechanism

Answer 2

Key to the market economic system and how resource allocation decisions are made.

Question 3

Advantages of a market economic system

Answer 3

A wide range of goods and services will be provided

Firms will respond quickly to changes in consumer’s wants

Leads to innovation and increase in efficiency of production

Less tax regulations

Innovation, Tax, Range, Speed
SR-IT

Question 4

Disadvantages of a market economic system

Answer 4

Merit goods may not get provided enough since they aren’t profitable

Only supply goods to consumers who can pay for them

Resources will be unused since they are only employed if it profitable to do so. (Unemployment, etc)

Demerit goods will be produced

Firms may disregard the welfare of people, animals, and the environment

Welfare, demerit goods, unused resources, Able to pay, merit goods

DWUMP

Question 5

Roles of government in an econcomy

Answer 5

Regulator - price control, banning goods, etc.

Consumer

Producer - Provide public goods or goods that aren’t provided. eg: police and national defense

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