Economic Systems

Question 1

How do countries deal with the basic economic problem?

Answer 1

Resource allocation

Question 2

What is resource allocation?

Answer 2

How do limited resources of factors of production are used in order to solve the problem of scarcity

Question 3

Name, and explain the two sectors of an economy

Answer 3

1. Private sector
   All organizations and businesses are owned by members of the general public and goods and services are provided by organizations outside the government

2.public sector
This sector is compromised of organizations that are owned and operated by the government and exist to provide services for its citizens

Question 4

What are the 3 questions every society must answer

Answer 4

1. What produce in what quantities?
2. For who to produce?
3. How to produce

Question 5

What does a free market economy?

Answer 5

In a free market economy, the market decides, what how and for who to produce which is done through the exchange of goods and services

Question 6

What are characteristics of the free market economy?

Answer 6

1. Resources a privately owned.
2. Self interest.
3. Freedom of choice.
4. Reliance on the price mechanism.
5. Limited role by the government.

Question 7

Name a few pros and cons of the free market economy

Answer 7

Pros
1. What is produced is determined by the market forces.
2. Producers respond quickly to changes in the consumers preferences
3. It encourages the firms to use the least cost methods of production.

Cons
1. Resources are only emplpyed if profitable.
2. On the production of merit goods.
3. Externalities.

Question 8

What is a planned economy?

Answer 8

A planned economy is when the government controls allocation of resources to produce goods and services

Question 9

What are some characteristics of a planned economy?

Answer 9

1. Resources of publicly owned by the government.
2. Production is planned by the government.
3. Prices are fixed by the government.

Question 10

What are the pros and cons of a planned economy system?

Answer 10

Pros
1. Production is not done with the profit motive.
2. Demerit goods can be controlled since production is under the government control.
3. Greater stability is probable.

Cons
1. Consumers have no power over the production.
2. It is difficult to know peoples wants and needs.
3. The absence of competition results in inefficiencies.

Question 11

What is a mixed economy?

Answer 11

A combination of government planning and ownership of resources together with the use of the free market economic system to determine the allocation of resources

Question 12

Name some rolls of the government in a mixed economy

Answer 12

1. Provision of public goods.
2. Provision of merit goods.
3. Control of the merits goods.
4. Control of externalities to remedy market failure.

Question 13

What are private good?

Answer 13

Private goods are goods and services that have to be purchased to be consumed

Question 14

What are public goods?

Answer 14

Public goods, goods and services are provided by the government

Question 15

What are merits goods?

Answer 15

Merry good, so good and services that have a healthy and safe consumption and create positive externalities

Question 16

What are demerits of goods?

Answer 16

Demerit goods are the opposite of married to goods. The consumption of demerit goods is unhealthy, dangerous and provides negative externalities.