Section 2.6 The Role of Markets in Allocating Resources

Question 1

What are the three economic questions all businesses ask?

Answer 1

What to produce? How to produce? Whom to produce?

Question 2

What is an economic system?

Answer 2

The institutions, organisations and mechanisms that influence economic behaviour and determine how resources are allocated

Question 3

What are the three main economic systems?

Answer 3

Planned economy, market economy, and mixed economy

Question 4

What is a planned economy?

Answer 4

An economic system where the government makes the decisions of what to produce, how to produce and for whom to produce

Question 5

What are directives?

Answer 5

State instructions given to state-owned enterprises

Question 6

What is a market economy?

Answer 6

An economic system where consumers determine what to produce and businesses determine how to produce (produced for consumers). (Low input from government)

Question 7

What is the price mechanism?

Answer 7

The way the decisions made by the households and firms interact to decide the allocation of resources.

Question 8

What does capital-intensive mean?

Answer 8

The use of high proportion of capital (man-made machines) relative to labour (human effort)

Question 9

What does labour-intensive mean?

Answer 9

The use of high proportion of labour (human effort) relative to capital (man-made machines)