How Economies Differ

Question 1

What are the 3 main criteria used to classify economies?

Answer 1

• Ownership of productive resources and property rights.
• The role of markets and market forces (demand & supply) in allocating resources, determining prices and distributing incomes.
• The role of government in economic life - production of goods and services, provision of infrastructure and social welfare.

Question 2

What are pure-market economies?

a.ka capitalist economies

Answer 2

• All major economic decisions are made by individuals and private firms motivated by self interest.
• Most economic resources are owned by the private sector, and people are able to seek wealth without the government intervening or affecting their business activities.

Question 3

What are centrally-planned economies?

Answer 3

c

Question 4

What is a market?

Answer 4

A market is a network of buyers and sellers seeking to exchange a particular product at a certain price.

Question 5

Define product market.

Answer 5

The interaction of demand for and supply of the outputs of production, that is, goods and services.

Question 6

Define price mechanism.

Answer 6

The process by which the forces of supply and demand interact to determine the market price at which goods and services are sold, as well the quantity produced.

Question 7

Define factor market.

Answer 7

A market for any input into the production process, including natural resources, labour, capital and enterprise.

Question 8

Define consumer sovereignty.

Answer 8

Consumer sovereignty refers to the manner in which consumers, through market demand, collectively determine what is produced and the quantity of production.

Question 9

What is the difference between consumer sovereignty and price mechanism?

Answer 9

Consumer sovereignty relates to how consumers affect what a business produces.
Price mechanism relates to how consumers affect the price of goods/services.