Market economic system(Chapter 13)

Question 1

Definition

Answer 1

This economic system relies on the market forces of demand and supply to allocate resources, with minimal government intervention. The price mechanism is a key to how to the market economic system functions.

Question 2

Advantages of a market economic system

Answer 2

-Efficiency
- A wide variety of goods and services will be produced
-Freedom of choice
- Firms will respond fast to changes in consumer wants/spending habits.
-Incentives to develop new products
- Very few taxes and regulations

Question 3

Disadvantages

Answer 3

-Environmental issues (firms can disreagrs the welfare of people, animals and the environment)
- Some goods and services will not be produced because they arent profitable enough
-Income and wealth inequality( Firms only supply to those who are able to pay for them)
-Social hardship
-Harmful goods can be produced if it is profitable
-Wasteful competition

Question 4

What is the role of government/public sector in a market economy?

Answer 4

In a free market economic system, government intervention and central planning are limited or absent. However, in reality, there are no completely free market economies as governments do exist and intervene in markets. Government actions can impact private firms and consumers, altering market outcomes. The government may intervene as a regulator by setting price limits or imposing quality standards. As a consumer, it can use its purchasing power to negotiate lower prices for goods and services. Additionally, as a producer, the government may directly provide essential services and goods that are not adequately supplied by the private sector. The extent of government intervention determines the level of autonomy for private firms and consumers in determining what, how, and for whom goods and services are produced.