chapter 13 - market economic system

Question 1

What is the private sector?

Answer 1

The part of the economy owned and operated by private individuals or companies for profit

Question 2

What is the public sector?

Answer 2

The part of the economy controlled by the government, often providing essential services

Question 3

What is a state-owned enterprise (SOE)?

Answer 3

A business owned and operated by the government

Question 4

Why do governments own certain enterprises?

Answer 4

To provide essential services, prevent monopolies, or control key industries

Question 5

Give 2 examples of public sector services.

Answer 5

Healthcare and public education

Question 6

Give 2 examples of private sector businesses.

Answer 6

Supermarkets and tech companies

Question 7

What is a market economic system?

Answer 7

An economy where decisions are made through the interaction of supply and demand with little government involvement

Question 8

Who controls the allocation of resources in a market economy?

Answer 8

Consumers and producers through the price mechanism

Question 9

What is the price mechanism?

Answer 9

The system where prices adjust based on supply and demand to allocate resources efficiently

Question 10

What signals do prices provide in a market economy?

Answer 10

Signals to buyers and sellers about what to produce and consume

Question 11

How are resources allocated in a market economy?

Answer 11

Through supply and demand via the price mechanism

Question 12

What happens when demand for a good rises?

Answer 12

Its price increases, encouraging more production

Question 13

What happens when supply of a good increases?

Answer 13

Its price falls, encouraging more consumption

Question 14

What is competition important in a market economy?

Answer 14

It encourages lower prices, better quality, and innovation

Question 15

What is an incentive in economics?

Answer 15

A reward or penalty that motivates people to act in certain ways

Question 16

How does the profit motive act as an incentive?

Answer 16

It encourages businesses to reduce costs and increase efficiency to maximize profit

Question 17

What is consumer sovereignty?

Answer 17

The power of consumers to influence production through their buying choices

Question 18

How does consumer demand shape markets?

Answer 18

Producers respond to what consumers want to earn profit

Question 19

How does the market ensure efficient allocation of resources?

Answer 19

Resources are directed to where they are most demanded

Question 20

What is one benefit of choice in a market economy?

Answer 20

Consumers can choose from a wide variety of goods and services

Question 21

How does competition affect prices?

Answer 21

It helps lower prices due to rival firms trying to attract consumers

Question 22

How does competition affect quality?

Answer 22

It pushes firms to improve product quality to stand out

Question 23

What is market failure?

Answer 23

When the market fails to allocate resources efficiently or fairly

Question 24

What causes market failure?

Answer 24

Externalities, public goods, lack of competition, and inequality

Question 25

What is lack of competition?

Answer 25

When few firms dominate the market, reducing consumer choice

Question 26

What is monopoly power?

Answer 26

When a firm has significant control over the market and can set high prices

Question 27

How can monopoly power harm consumers?

Answer 27

It can lead to high prices and low quality goods

Question 28

What is meant by factor immobility?

Answer 28

When resources, especially labour and capital, cannot easily move to where they are needed

Question 29

How does factor immobility cause inefficiency?

Answer 29

It leads to underemployment or waste of resources

Question 30

Why is inequality a problem in a market economy?

Answer 30

It can lead to social unrest and prevent equal access to resources

Question 31

Can a market economy provide public goods efficiently?

Answer 31

No, because there’s no profit incentive to provide them

Question 32

Why might governments intervene in a market economy?

Answer 32

To correct market failure and ensure fairness

Question 33

What type of goods are under-provided in a market economy?

Answer 33

Public and merit goods like education and healthcare

Question 34

What happens if demerit goods are over-provided?

Answer 34

It can lead to negative externalities like pollution or health problems

Question 35

Define ‘market economy’ in one sentence.

Answer 35

An economy where economic decisions are made by individuals and firms based on supply and demand

Question 36

What is meant by economic efficiency?

Answer 36

Producing goods with the best use of resources at the lowest cost

Question 37

What is the role of producers in a market system?

Answer 37

To supply goods and services in response to consumer demand

Question 38

What is the role of consumers in a market system?

Answer 38

To make choices that influence production through their spending

Question 39

What is meant by freedom of enterprise?

Answer 39

The ability of businesses to operate freely without excessive government control

Question 40

What is the main goal of firms in a market economy?

Answer 40

To earn profit by meeting consumer needs efficiently