Resource Allocation In Diff Economic Systems Ch#4

Question 1

What are the three questions for resource allocation?

Answer 1

1. What goods and services are to be produced?
2. How are the goods and services to be produced?
3. Who should receive the goods and services?

Question 2

What are the 3 main types of Economic Systems?

Answer 2

1. Market Economy
2. Planned Economy
3. Mixed Economy

Question 3

Define Economic System.

Answer 3

An economic system is a mechanism used by communities or governments to coordinate and allocate wealth,resources and commodities within a territory or a nation.

Question 4

What is a Market Economy?

Answer 4

A market economy is an economic system where two forces,supply and demand,direct the production of goods and services, and decisions are made by individuals and firms.

Question 5

What is a Planned Economy?

Answer 5

Planned economy is an economic system where the industry is state-owned and allocated by a central body.

Question 6

What is a Mixed Economy?

Answer 6

Mixed economy is an economic system where both market forces and govt are involved in allocation of resources.
OR
It combines aspects of both socialism and capitalism.

Question 7

Define Market Mechanism/Price Mechanism

Answer 7

In market mechanism the decisions for resource allocation are taken by individual producers and consumers with no government intervention.

Question 8

Market Mechanism can also be called as?

Answer 8

Price Mechanism

Question 9

Advantages of Market Economy?

Answer 9

1. Production with the demand of consumers
2. High competition which leads to more efficient use of resources by firms
3. Lower prices and high quality goods due to high competition

Question 10

Disadvantages of Market Economy?

Answer 10

•Merit goods such as health and education may be under produced
•Demerit goods such as alcohol and cigarettes may be over produced
•Public goods will not be produced
•Monopolies and oligopolies may increase prices and inefficiency