1. The Market System : Unit 11 -13

Question 1

1. What is the economy?

Answer 1

• system that attempts to solve the basic economic problem.

Question 2

2. What are the public sector?

Answer 2

• government organizations that provide goods and service in the economy.

Question 3

3. What is private sector?

Answer 3

• provision of goods and services by businesses that are owned by individuals or groups of individuals.

Question 4

4. Who are shareholders?

Answer 4

• people or organization that owns share in a company.

Question 5

5. What are the types of ownership in private sector?

Answer 5

• sole trader.
• partnerships.
• companies.

Question 6

6. What are 4 aims of the private sector?

Answer 6

• Survival.
• Profit maximization.
• Growth.
• Social responsibility.

Question 7

7. What are the public sector aims

Answer 7

• Improving the quality of services.
• Minimizing costs.
• Allow for social costs and benefits.
• Profit.

Question 8

8. What are the 3 types of economy?

Answer 8

• market/ free enterprise economy.
• command/ planned economy.
• mixed economy.

Question 9

9. What is a market/free enterprise economy?

Answer 9

an economy that relies least on the public sector for the provision of goods and services as the vast majority of goods and services are provided by private sector.

Question 10

10. What is command economy?

Answer 10

an economy that relies entirely on the public sector for the provision of goods and services.

Question 11

11. What is mixed economy?

Answer 11

an economy that relies on both the public sector and the private sector to provide goods and services.

Question 12

12. What is market failure?

Answer 12

market failure is where markets lead to inefficiency.

Question 13

13. What are the 5 reasons to market failure?

Answer 13

Missing markets.
Externalities.
Lack of Competition.
Lack of information.
Factor immobility.

Question 14

14. What is merit goods?
    - What is public goods?

Answer 14

• merit goods:- goods that are under-provided by the private sector that benefit the public.
• Public goods:- goods that are not likely to be provided by the private sector.

Question 15

15. Name the 2 characteristics of a public good.

Answer 15

• Non-excludability.
• Non- rivalry.

Question 16

16. What do you mean by a free rider?

Answer 16

• individual who enjoys the benefit of a good but allows others to pay for it.

Question 17

17. What is privatization?

Answer 17

• privatization is act of selling a company or activity controlled by the government to private investors

Question 18

18. What are nationalized industries?

Answer 18

• act of selling a companies or activity controlled by the government to private investors.

Question 19

19. What are natural monopolies?

Answer 19

situation that occurs when one firm in an industry can serve the entire market at a lower cost than would be possible if the industry were composed of many firms.

Question 20

20. What are the 3 forms privatization takes place?

Answer 20

• Sale of nationalized industries.
• Contracting out.
• The sale of land and property.

Question 21

21. What are the 3 reasons for privatization?

Answer 21

• To generate income.
• Public sector organizations were inefficient.
• To reduce political interference.

Question 22

22. What are the 3-4 impacts of privatization?
    a. consumers
    b. Workers
    c. Government
    d. Businesses.

Answer 22

A. - good quality products.
- charge a reasonable price and grow.
B. - job losses
- might be pressed into raising their productivity.
- been forced to adopt more flexible working practices.
C. - profit has become an important objective.
- firms have increased investment.
- They have been a number of mergers and takeovers
- many privatized businesses have diversified into new areas.
D. - huge amount of revenue.
- expensive.
- can focus more sharply on the business of the government.

Question 23

23. What is diversified?

Answer 23

• if a company or economy diversifies, it increases the range of goods or services it producers.

Question 24

24. What is hostile takeover?

Answer 24

• takeover that the company being taken over does not want or agree to.

Question 25

25. What are takeovers?

Answer 25

- act of getting control of a company by buying over 50 % of its share.

Question 26

26.What are spillover effects?

Answer 26

effect that one situation or problem has on another situation.

Question 27

27. What are private costs?

Answer 27

costs of an economic activity to individuals and firms.

Question 28

27. What are external costs?

Answer 28

-negative spillover effects of consumption or production- they affect third parties in a negative way.

Question 29

28. What are private benefits?

Answer 29

rewards to third parties of an economic activity, such as consumption or production.

Question 30

27. What are external benefits?

Answer 30

positive spillover effects of consumption or production, they bring benefits to third parties.

Question 31

28. What are social costs? social benefit?

Answer 31

social costs are costs of an economic activity to society as well as the individual or firm.

Question 32

28. How to calculate: a. Social benefit b. Social costs

Answer 32

- social benefit = private benefit + external benefit. - social costs = private costs + external costs.

Question 33

29. What are the 3 examples of external benefits?

Answer 33

- Education. - Health care. - Vaccinations.

Question 34

34. What are the 3 examples of social costs?

Answer 34

- the noise and air pollution from vehicle traffic. - a roommate leaves dirty dishes in the sink. -someone is being loud and disturbs their neighbors

Question 35

35. Give 5 ways how government policies deal with externalities.

Answer 35

- Taxation. - Subsidies. - Fines. - Government regulation. - Pollution permits.