2.8 Market Economic System

Question 1

What is a market economic system?

Answer 1

An economic system where all resources are allocated by private producers and consumers, having little to no government intervention

Question 2

What are 3 features of a market economic system?

Answer 2

• All resources owned/allocated by private individuals
• Govt. refrains from regulating markets
• The demand and supply fixes the price of products (Price Mechanism)

Question 3

Define Price Mechanism

Answer 3

When the demand and supply fixes the price of products

Question 4

What are 3 advantages of a market economic system?

Answer 4

• A wide variety of quality goods/services as firms will compete to satisfy consumers
• Firms respond quickly to changes in consumer demand to satisfy demand
• High efficiency, as producers want to maximise profits

Question 5

What are 3 disadvantages of a market economic system?

Answer 5

-Public and merit goods may not be produced preventing economic development

• Demerit goods may be produced causing harm to economy
• Abuse of monopoly power to charge high prices and restrict supply to other firms