2 The allocation of resources

Question 1

Incentives

Answer 1

• Something that motivates an action in economics, this usually relates to profit, prices and social welfare

Question 2

Consumer incentives

Answer 2

• responds to lower prices by increasing demand

Question 3

Firm incentives

Answer 3

• respond to higher profits by increasing supply

Question 4

Effectiveness of incentives

Answer 4

• size of incentive
• the timescale involved
• the type of good/service
• the objectives of economic agents
• other changes in makert/economy

Question 5

Planned economy

Answer 5

The government controls the factors production and decides on the allocation of resources

Question 6

Advantages of planned economy

Answer 6

• The government and focus resources on where they are most needed in the economy
• Price can be controlled so that those most in need an access goods and services
• Fewer resources are wasted on duplicating goods and services
• there can be less inequality of incomes and wealth

Question 7

Mixed economy

Answer 7

Combination f market forces and government policies that control the allocation of resources

Question 8

Advantages of mixed economy

Answer 8

• The government can decide which resources to control
• Market forces can be used from goods and services that are considered less important

Question 9

Market/free economy

Answer 9

Allocation of resources is decided by the interaction of supply and demand (market forces)

Question 10

Advantages of market economy

Answer 10

• Having multiple businesses all competing against on each other is likely to lead to lower average costs
• Competition between firms can lead to greater efficiency-firms focus on tta areas in which they can be most efficiency
• Firms are more likely to innovate when there is a profit incentive
• People have a incentive to work in order to earn money to purchase goods and services

Question 11

What is controlled by who

Answer 11

• The will of people - different political systems prioritise different goods and services
• gov objectives - some things are considered particularly beneficial to a society and the control of those goods may be important
• The availability of some resources in a particular economy - rent control in new york

Question 12

Economic efficiency

Answer 12

Both allocative and productive efficiency is achieved

Question 13

Allocative efficiency

Answer 13

situation where production matches consumer preferences i.e. when supply equals demand

Question 14

Productive efficiency

Answer 14

situation where all of the resources in society are being used to produce as much as possible - no more could be produced