Economic Systems

Question 1

What is an Economic System?

Answer 1

The way a country uses its resources to organize production and distribution of goods to maximize the benefits to its society.

Question 2

There are ______, _______, _______, and ________ economies

Answer 2

There are local, national, regional, and global economies

Question 3

Command economy is also known as:

Answer 3

• Planned
• Centrally planned
• Controlled
• Socialist
• Communist

Question 4

The characteristics of a command economy are:

Answer 4

• Dependent on the government
• The central authority decides what and how to produce and who gets the product
• Supply and demand don’t work because it’s Centrally planned and leads to imbalance

Question 5

List three advantages of a command economy

Answer 5

• Little or no unemployment
• Promotes fairness among the citizens
• Prices are affordable
• Ability to set goals
• Benefits the entire society

Question 6

List three disadvantages of a planned economy

Answer 6

• Disconnection between which goods are produced and what citizens need
• Decisions are made by bureaucrats who are out of touch with the market
• Government tends to dismiss individual rights
• Tends to be a lot of efficiency

Question 7

The Market economy is also known as:

Answer 7

• Free
• Unplanned
• Capitalist
• Free market

Question 8

The characteristics of a market economy are:

Answer 8

• Allow goods to flow freely through the market
• Decisions are made by producers and consumers
• Price mechanism - The prices of goods affect the supply and demand of goods
• The economy must balance itself out for the supply to be equal to the demand

Question 9

List three advantages of a market economy

Answer 9

• There is freedom of choice
• Greater variety in goods
• Competition is the incentive for firms to produce a higher quality of goods
• The profit motive is an incentive for workers and managers to be motivated to work at a high standard
• The overall standard of living tends to be higher

Question 10

List three disadvantages of the market economy

Answer 10

• There are inequalities of wealth
• Public goods are not produced
• Merit goods are under produced
• Poverty exists
• Economic ‘bads’ are produced in large quantities
• There is no authority to control the production of externalities like pollution

Question 11

List the characteristics of a mixed economy

Answer 11

• Both a public and private sector exist
• The public sector tends to produce military, public and merit goods
• The government can create laws to control the actions of the private sector firms

Question 12

The advantages of a mixed economy are:

Answer 12

• Resources are used more efficiently
• Government is actively involved in protecting the natural environment and its people
• There is greater balance in consumer needs and wants
• There is freedom of choice for producers and consumers

Question 13

The disadvantages of a mixed economy are:

Answer 13

• Government regulations may inhibit the creativity of the private sector
• Conflict may arise between the government and the private investors about how to allocate scarce resources
• State-owned enterprises may operate inefficiently resulting in wastage of resources