Topic 4: Free Market And Mixed Economies

Question 0

Free market

Answer 0

An economy based on supplying a demand with little or no government

Question 1

Main actors in a free market

Answer 1

• motivation
• private ownership
• free enterprise
• competition
• decentralised decision making
• decisions not always made by government

Question 2

Advantages of a free market

Answer 2

• investment could be higher
• freedom of choice
• motivated workers
• better quality hoods
• profits

Question 3

Disadvantages of a free matket

Answer 3

• no taxes
• they can sell illegal products
• gap between rich and poor will e big
• have to pay for everything yourself e.g no NHS, education

Question 4

Market

Answer 4

A situation where buyers and sellers come into contact for the purpose of exchange

Question 5

Market economy

Answer 5

An economy in which market forces are allowed to guide the allocation of resources

Question 6

Centrally planned economy

Answer 6

An economy in which decisions on resource allocation are guided by the state

Question 7

Mixed economy

Answer 7

An economy in which resources are allocated partly through prices sign.as and partly of intervention by the state

Question 8

Agricultural markets

Answer 8

• supply side of the market can be strongly affected by weather and climate, sometimes in random or unpredictable ways
• this can create conditions in which is difficult to forecast market outcomes in advance
• This means that prices can vary quite widely making conditions I agricultural markets difficult to predict

Question 9

Commodity markets

Answer 9

• this consists of markets for various types of raw materials used in the production process of many manufacturing industries
• Prices in these markets can be volatile&volatility arises from the demand side of the market
• Countries experience fluctuations in the overall level of economic activity: periods of recessions or booms
• the demand for commodities vary depending on a countries economic activity

Question 10

The housing market

Answer 10

• demand for houses to buy is influenced by interest rates
• low interests rate>encouraged borrowing>^demand for houses
• Demand increases rapidly
• however, supple expands relatively slow
• The result is an increase i the equilibrium price&a small expansion of supply

Question 11

The foreign exchange market: Example of pounds and euros

Answer 11

-Demand for pounds increase if if German tourists need to exchange euros for pounds or if people from foreign countries buy British good
-When the exchange rate for pounds is relatively high potential buyers of British goods get relatively fewer pounds per euro>demand will be relatively low
Exchange rate
( € to £) l Supply
l
l Demand
l__________
Quantity of pounds per period

Question 12

The stock market

Answer 12

-Firms that want to raise funds for investing in new machinery or other projects can do so by issuing stocks which are then sold on the stock market

Question 13

The labour market

Answer 13

in the economy firms/businesses demand labour and employees supply labour