chp 6 Flashcards
What are the three fundamental economic questions
What to produce
How to produce
Who are the products to be produced for
Economic system
The institutions, organizations and mechanisms that influence economic behavior and determine how resources are allocated
How are the answer to the threee economic questions
They depend on the type of economic system
Three main types of economic systems
Market planned mixed
What are the difference between the three economic systems
Depends on the respective tiles and importance of government and government he price mechanism
Price mechanism
The system by which market forces of demand and supply determine prices
Most countries have mixed economic systems.
The size of the private sector varies. The diagram shows government spending as a percentage of total expenditure for selected countries in 2014.
Identify the evidence to suggest that the governments of Kiribati and Cuba and France provide most goods and services.
State how most goods and services are allocated in Pakistan.
Sample answer:
i In each of the named countries, the percentage of government spending is above 50% of total expenditure.
ii Most goods and services in Pakistan are allocated through the market mechanism.
Cc
How are consumers and producers preferences signaled
Through price mechanism
Government interactions are
Minimal
How does the price mechanism works
Automatically where by prices are determined by the interaction of demand and supply
Demand
The willingness and ability to buy a product
Supply
The willingness and ability to sell a product
Market equilibrium
A situation where demand and supply are equal
At the current price
Market disequilibrium
A situation where demand and supply are not equal at the current price
Falling supply
Rising prices
Farmer grow more maize
Producers refine more cooking oil
Price fall
Market equilibrium is restored
