Economic markets

Question 1

how does a free market work

Answer 1

in a free market, resources are allocated through the interaction of free and self-directed market forces. which means that what to produce is determined by consumers, how to produce is determined by producers and who gets the products depends on the purchasing power of the people

Question 2

how does a command market work

Answer 2

scarce resources are allocated by the government or an agency appointed by the government. what to produce is determined by gov preferences, how to produce determined by gov an gov employees, for whom to produce determined by gov preferences

Question 3

cons of free markets

Answer 3

coordination of scarce resources at times of crisis such as war or natural disasters is better in command markets than free markets. higher levels of income inequality (rich people become richer). lack of merit goods and more demerit goods . if competition disappears there may be monopolies who charge high prices an offer low quality of service in free.

Question 4

how does a mixed economy work?

Answer 4

mixed economies may have a distinct private sector and public sector that allocates resources (gov is public sector - police, fire services are provided by public sec). commonly, resources are allocated by a combination of markets an planning such as healthcare and education which have pvt an public sectors.

Question 5

how does a mixed economy answer the “what to produce, how to produce an for whom to produce” question?

Answer 5

what : determined by gov preferences an consumer preferences. how: determined by gov an producers. for whom: depends on purchasing power and gov preferences

Question 6

why are there no free markets?

Answer 6

cuz the government has to intervene and break up monopolies, issue money, protect property rights etc for market mechanism to work

Question 7

advantages of free market over command market? (give 4)

Answer 7

1. consumer sovereignty - freedom of choice. 2 high motivation (promotes innovation and better quality). 3.political freedom 4. due to competition ppl produce goods at the lowest cost ensuring productive efficiency

Question 8

advantages of command markets over free

Answer 8

1. less income inequality. 2. no competitive services so less wastage 3. standardised products means they’re produced more cost effectively 4. objective is consumer wellfare so reduced demerit an increased merit good production

Question 9

disadvantages of command markets

Answer 9

1. too many decisions to make/things to regulate so under/over supply may occur 2. consumers lose freedom an are often led by dictators 3. similar wages may lead to lack of motivation an efficiency 4.decision making becomes slow cuz it has to go thru various stages (increases bureaucracy)

Question 10

who is adam smith, fredrick hayek and karl marx?

Answer 10

adam smith: advocated for free markets cuz competition increases quality an decreases prices an improves allocation of resources (associated with division of labour/specialisation too). hayek: free market advocate cuz individuals know better about what they need than the government does. karl: command market advocate cuz profit oriented employers pay workers less so he thought workers will turn against emplyers