Economic Systems

Question 1

Reasons for a country to follow a specific economic system (4)

Answer 1

Stages of development of a country
System of government in a country
Preferences of inhabitants of a country
Language culture, tastes, customs and environmental factors

Question 2

Definition of a free market economy

Answer 2

economic system based on the forces of demand and supply with little or no government intervention

Question 3

what is a free market economy also known as

Answer 3

capitalism

Question 4

how are economic activities regulated (3)

Answer 4

decisions or actions of the consumer or supplier
pricing of goods and services
profits to be made from selling goods and services

Question 5

characteristics of a free market economy (6)

Answer 5

1. demand and supply determine what and for whom
2. prices act as signals to prevent shortages and surpluses
3. the individual has freedom of choice
4. factors of production are privately owned and controlled
5. profits, private ownership and private freedom are at the heart of the system
6. business cycles are characteristic of free-market systems
   5.

Question 5

characteristics of a free market economy (7)

Answer 5

1. demand and supply determine what and for whom
2. prices act as signals to prevent shortages and surpluses
3. the individual has freedom of choice
4. factors of production are privately owned and controlled
5. profits, private ownership and private freedom are at the heart of the system
6. business cycles are characteristic of free-market systems
7. zero gov intervention

Question 6

advantages of a free market economy (6)

Answer 6

1. private ownership
2. factors of production managed by the individual
3. individuals can use the profit they make to enhance personal welfare.
4. freedom of entry results in competition
5. Businesses not able to dominate markets
6. huge profits and economic progress are features of upswing phases.

Question 7

Disadvantages of a free market economy (6)

Answer 7

1. can lead to high levels of inequality
2. each individual pursues the greatest possible satisfaction for themselves which often leads to the detriment of others
3. self-interest outweighs the interest of the community
4. only goods and services for which there is a demand are produced
5. harmful products are over provided
6. downswing phases often result in unemployment and poverty.

Question 8

Definition of a centrally planned economy

Answer 8

gov decides what, how, and for whom to produce goods and services. Factors of production are viewed as commercial property.

Question 9

whats is a centrally planned economy also known as

Answer 9

communism/socialism

Question 10

characteristic of a centrally planned economy (7)

Answer 10

1. state is the biggest economic entity in the economy employing vast amounts of labour to execute its economic policies from a central position
2. bureaucracy
3. private initiative limited/non-existent
4. state dictates to individuals what occupations they need to follow
5. factors of production owned by the state
6. state provides essential goods/services for all in equal quantities
7. limited access to most essential goods and services

Question 11

Advantages of the centrally planned economy (6)

Answer 11

1. serves needs of the community and not individual
2. equal distribution of income and resources
3. Long-term planning
4. less exploitation of natural resources
5. environment experiences less deterioration
6. full employment as the state creates jobs for all

Question 12

Disadvantages of a centrally planned economy (7)

Answer 12

1. inefficient allocation of resources
2. requires a huge amount of administration by civil servants
3. low productivity and overall economic growth rate
4. long term planning may result in large surpluses and shortfall
5. low quality of output
6. variety of goods and services may be too limited to satisfy customers’ tastes and preferences
7. products standardized and luxury goods regarded as unnecessary

Question 13

definition of a mixed economy

Answer 13

an economic system that combines the advantages of both economic systems

Question 14

characteristics of a mixed economy (5)

Answer 14

1. most factors of production are privately owned but regulated by the gov
2. state intervenes when market inefficiencies occur
3. people use their own initiative to manufacture and sell products
4. profit motive plays an important role
5. the extent to which economic activities are market-orientated depends on the level of gov involvement
6. public sector provided infrastructure and public services

Question 15

Advantages of mixed economy (5)

Answer 15

1. private ownership
2. gov does not have to be too big
3. individuals have freedom of choice
4. competition between businesses
5. state provides essential public goods/services

Question 16

disadvantages of mixed economy (6)

Answer 16

1. market failure occurs when scarce resources are wasted due to incorrect production or greed for private businesses
2. environmental deterioration is a problem and labour is often exploited
3. taxes are high
4. most factors of production are privately owned
5. individuals face the risk of losses and bankruptcy
6. quality of goods may be inferior

Question 17

READ PG 7 BOOK 3

Answer 17

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