Macroeconomics Long Questions Flashcards
What happens in a market economy?
The basic economic problems of what, how and for whom to produce are decided by the market system
What are the characteristics of a market economy?
COMPETITION DECENTRALIZED DECISION MAKING FREE ENTERPRISE AND CHOICE MOTIVATION PRIVATE OWNERSHIP
Why is competition a characteristic of a market economy?
Competition exists if economic units are free to use their resources as they wish
Why is decentralized decision making a characteristic of a market economy?
Individual economic agents are free to choose how they wish to allocate resources
Why is free enterprise and choice a characteristic of a market economy?
Owners of the factors of production as well as producers of goods and services have the right to buy and sell what they own through the market
Why is motivation a characteristic of a market economy?
In a pure market economy, consumers and producers are motivated by pure self-interest or private gain
Why is private ownership a characteristic of a market economy?
Private individuals own nearly all factors of production
What are the advantages of a market economy?
It works automatically Choice Innovation Economic growth Distribution of income and wealth Risk
Why does a market economy work automatically?
It registers peoples preferences, it transmits those preferences to enterprises which move resources to produce the good and decide who will get the final product
Why is choice an advantage of a market economy?
Consumers are faced with a wide variety of choices
Why is innovation an advantage of a market economy?
Market economies have strong incentives in terms of material gain and profits
Why is Economic growth an advantage of a market economy?
A free market economy is very dynamic because of the driving forces of profits and the checking forces of competition
Why is the distribution of income and wealth an advantage of a market economy?
Fear of economic failure is a major incentive for people to take jobs however poorly paid
Why is risk an advantage of a market economy?
Individuals take great care to reduce economic risk
How is choice a disadvantage in a market economy?
Consumers’ choice may be distorted by extensive persuasive advertising
How is competition a disadvantage in a market economy?
Markets tend to be dominated by competition, they can manipulate and exploit uninformed and naive consumers
How is Income and Wealth a disadvantage in a market economy?
There is no link between needs and the allocation of resources, income is allocated to those with capital
How is risk a disadvantage in a market economy?
Only a small percentage of population has enough income to insure themselves against mishaps
How are externalites a disadvantage in a market economy?
Selfish attitude and exploitation prevails toward others and the environment
What is a centrally planned economy?
In a centrally planned economy resources are allocated by the government through a planning process
What are the characteristics of a centrally planned economy?
Motivation
Ownership
Planning
Why is motivation a characteristic of a centrally planned economy?
Consumers, enterprises and government are assumed to be selfless, co operating to work for the community
Why is ownership a characteristic of a centrally planned economy?
All factors of production except labour are owned by the state
Why is planning a characteristic of a centrally planned economy?
Resources are allocated through a planning process, the state directs labour into jobs and consumers on what to consume
