LS6 - Types of Economies

Question 1

Who are the ‘actors’ within an economy?

Answer 1

Individuals, Groups, Institutions

Question 2

Give examples of Individuals within the Economy.

Answer 2

Consumers and workers

Question 3

Give examples of Groups in an economy.

Answer 3

Firms, charities, political parties

Question 4

Give examples of Institutions in an Economy.

Answer 4

Government, Parliament, Legal System

Question 5

What are the 2 methods used to allocating resources?

Answer 5

Planning

Market mechanism

Question 6

Explain how planning is used to allocate resources.

Answer 6

Planning is funded by taxpayers and is how the government decide to allocate resources in an economy

Question 7

Explain how market mechanism is used to allocate resources.

Answer 7

Market mechanism is how the market itself decides how to allocate its resources

Question 8

What is a market?

Answer 8

Anywhere that sellers and buyers can exchange goods and services

Question 9

What is a command economy?

Answer 9

An economy where the resources are provided solely by the state

Question 10

What is a mixed economy?

Answer 10

An economy where the resources are allocated by the state and the price mechanism

Question 11

What is a free market economy?

Answer 11

An economy where the resources are allocated solely by the price mechanism

Question 12

What is the public sector of an economy?

Answer 12

The part of an economy which is controlled / owned by the Government

Question 13

What is the private sector of an economy?

Answer 13

The part of an economy which is not controlled / owned by the Government

Question 14

What is profit motive?

Answer 14

A reason to try and change so they can become more efficient and make more profit

Question 15

Why is it beneficial for firms to have a profit motive and competition?

Answer 15

Because they are more incentivised to increase their quality and innovation

Question 16

Why is it beneficial for consumers if firms have a profit motive?

Answer 16

Because firms would meet consumer demand more often and produce a wider range of products to make more money

Question 17

Why is profit motive absent in command economies?

Answer 17

Because firms are told what to produce

Question 18

Why do consumers get less freedom of choice of products in command economies?

Answer 18

Because firms are told what to produce and there is no profit motive so they are not incentivised to make a wider range of products

Question 19

Why is quality and innovation higher in mixed and free economies compared to command economies?

Answer 19

Because there is more profit motive in mixed and free economies so companies are incentivised to make more products with higher quality

Question 20

What can cause profit motive to decrease in economies?

Answer 20

Monopolies and concentrated markets can limit choice in markets

Question 21

What is efficiency?

Answer 21

Ensuring that your production and distribution of scarce resources are at its maximum potential

Question 22

Do free markets have a more equitable distribution of wealth and income or a less equitable distribution compared to command economies?

Answer 22

Less equitable distribution

Question 23

Why do free markets have a less equitable distribution of wealth and income compared to command economies?

Answer 23

Because owners of Capital and Land in free market economies accumulate wealth over time and pass over their privilege

Question 24

Why might command economies still lack equitability?

Answer 24

Some people may have better opportunities / access to public services

Question 25

What is a state made up of?

Answer 25

Territory, Population, Government

Question 26

What is the relationship between the state and the government?

Answer 26

The government rules over the state

Question 27

What is the difference between the government and the state?

Answer 27

The state is permanent whilst the government is temporary

The state includes all citizens while the government does not

Question 28

What is the role of the state in mixed economies?

Answer 28

Allocating resources through planning
Redistributing incomes through welfare spending
Regulating consumers and firms

Question 29

What is factor intensive production?

Answer 29

Production that relies heavily on one factor

Question 30

What are capital intensive societies?

Answer 30

Societies where the production heavily lies on producing Capital goods

Question 31

What are labour intensive societies?

Answer 31

Societies which focus on the wellbeing of the workforce and citizens

Question 32

Between Capital and Labour intensive societies, which tends to have a higher standard of living, and why?

Answer 32

Capital intensive societies because more Capital increases productivity

Question 33

What are demerit goods?

Answer 33

Goods which are illegal and banned in certain economies

Question 34

What is a forward market?

Answer 34

Agreeing to sell or buy something in a certain amount of time

Question 35

What are retail banks?

Answer 35

Banks which provide services to individuals

Question 36

What is a financial market?

Answer 36

A place where buyers or sellers can trade goods and services with a monetary value

Question 37

What is a sub-market?

Answer 37

A market that is within another market

Question 38

What are the 3 main sectors the economy has been divided into?

Answer 38

Primary
Secondary / manufacturing
Tertiary / service

Question 39

What is the primary sector?

Answer 39

Extracting raw materials and growing food

Question 40

What is the secondary sector?

Answer 40

Where raw materials are transformed into goods

Question 41

What is the tertiary sector?

Answer 41

Sector which provides services such as education, sport and leisure, etc.

Question 42

What does self-sufficiency mean?

Answer 42

Being able to provide all the things you need without needing other people

Question 43

What is a monopoly?

Answer 43

A seller that has 25% or more shares in the market or are one of many big sellers