Economic Systems

Question 1

Give six characteristics of a market economy

Answer 1

1. The law protects ownership of private property.
2. Everyone is free to live, work, produce, buy and sell whatever they choose (as long as it is legal).
3. Self-interest of consumers and producers drives the buying and selling of goods and services, including employment.
4. The law protects competition.
5. Prices are allowed to float along with supply and demand.
6. The primary role of the government is to make sure that everyone has free access to a free market.

Question 2

Give five characteristics of a command economy.

Answer 2

1. Budgets outline the government’s priorities and takes the place of a central plan.
2. Government guides the allocation of resources. Taxes discourage some activities while subsidies encourage others.
3. Government spending follows the priority for the country.
4. The government owns a monopoly in important national industries.
5. The government uses regulations to support economic priorities, such as agriculture.

Question 3

In a relatively free market economy, what roles might the government play on the economy?

Answer 3

• Maintaining law and order
• Maintaining private property rights
• Providing / playing a part in core services (health, education, transportation)

Question 4

With the price system in a market economy, what motivates enterprise?

Answer 4

The profit motive motivates entrepreneurs to allocate resources and make decisions on what is made.

Question 5

List some general benefits that often come with a market economy.

Answer 5

• Rel more innovation, choice, range, and quality of goods due to competition.
• Rel more private ownership of land and resources.
• Rel higher standard of living.

Question 6

State an advantage of having a planned / command economy.

Answer 6

• Government ls are able to quickly mobilise resources to protect national interest in times of crisis (e.g China built two hospitals in just over a week for covid-19).