Microeconomics - L2 Economic Systems

Question 1

What is efficient resource allocation?

Answer 1

Efficient resource allocation is when an economy is maximising its output from its inputs and therefore maximising the nation’s living standards.

Question 2

What are the 3 fundamental economic questions?

Answer 2

What to produce?
How to produce?
For whom to produce?

Question 3

How are the 3 fundamental economic questions answered?

Answer 3

The three fundamental economic questions are answered by the economic system in use within an economy.

Question 4

What are the 4 types of economic systems?

Answer 4

Market capitalist
Planned capitalist
Market socialist
Planned socialist

Question 5

How are the 3 fundamental economic questions answered in a market capitalist system/economy?

Answer 5

What to produce?
Based upon what consumers want and are willing to pay.
How to produce?
Producers choose the most efficient method possible.
For whom to produce?
Will be determined by the market. ie. whoever has the money to pay for the goods and services.

Question 6

Who owns the production resources in a market capitalist system/economy?

Answer 6

Individuals / Producers / Business owners

Question 7

What is the level of government intervention in a market capitalist system?

Answer 7

Low

Question 8

What is a market capitalist system driven by?

Answer 8

The desire of producers (business owners) to make a profit.
This means those who don’t have the money will have to miss out on some goods and services.

Question 9

What are 3 examples of countries that operate under a market capitalist system?

Answer 9

Australia, UK, USA, Japan

Question 10

How are the 3 fundamental economic questions answered in a planned capitalist economy?

Answer 10

What to produce?
Based upon decisions by government
How to produce?
Based upon decisions by government
For whom to produce?
Based upon how the government wants goods and services distributed.

Question 11

Who owns the production resources in a planned capitalist system/economy?

Answer 11

Individuals / Producers / Business owners

Question 12

What is the level of government intervention in a planned capitalist system?

Answer 12

Fairly high

Question 13

What is a planned capitalist system driven by?

Answer 13

The desire for producers (business owners) to make a profit, but also the government’s desire for people to have equal access to goods and services.

Question 14

What is an example of countries that operates under a planned capitalist system?

Answer 14

There isn’t one.
This type of economy doesn’t currently exist.

Question 15

How are the 3 fundamental economic questions answered in a market socialist economy?

Answer 15

What to produce?
Based upon what consumers are willing to pay.
How to produce?
Based upon what consumers are willing to pay.
For whom to produce?
Based upon who has the money to pay for goods and services.

Question 16

Who owns the production resources in a market socialist system/economy?

Answer 16

The government

Question 17

What is the level of government intervention in a market socialist system?

Answer 17

High

Question 18

What is a market socialist system driven by?

Answer 18

Profit made in the market for the government, but also a more equal distribution of resources / access to goods and services can be attempted.

Question 19

What is an example of a country that operates under a market socialist system?

Answer 19

Cuba

Question 20

How are the 3 fundamental economic questions answered in a planned socialist economy?

Answer 20

What to produce?
Based upon what the government believes the people need.
How to produce?
Based upon what the government determines to be efficient allocation.
For whom to produce?
Based upon what the government believes the people or nation needs.

Question 21

Who owns the production resources in a planned socialist system/economy?

Answer 21

The government

Question 22

What is the level of government intervention in a planned socialist system?

Answer 22

Very high

Question 23

What is a planned socialist system driven by?

Answer 23

The government having control over factors of production and distribution.

Question 24

What is an example of a country that operates under a planned socialist system?

Answer 24

North Korea

Question 25

Which economic system is likely to allocate resources most efficiently and why?

Answer 25

Market capitalist system.
This is because producers are motivated by profit. Therefore, they will look for ways to keep their costs down. Eg. reduce waste.
This will allow them to maximise their output (goods or services produced) from their inputs (resources used in production).