Chapters 13 - 15 chug

Question 1

Market economic system

Answer 1

Consumer demand determines what is produced
No government intervention
Those who have the highest incomes influence the market the most
Firms choose how something is produced, what is produced and who to
Privatized industry

Question 2

Planned economic system

Answer 2

Governments choose what, how and who a product is produced for
Government provides directives to firms
Nationalized industry
Provide basic necessities for free to their citizens

Question 3

Mixed economic system

Answer 3

Incorporates the functions of planned and market economic systems

Question 4

Advantages of a market economic system

Answer 4

Incentives to work
Consumers are sovereign and responsive to changes to consumer demand
Consumers have a variety of products
Costs (efficient allocation of resources) and prices (competition) are low
High quality of goods

Question 5

Disadvantages of a market economic system

Answer 5

No public goods produced (free rider problem)
Lack of interference towards external costs and demerit goods by government
Creations of monopolies cause poor allocation of resources
Advertising distorts consumer choice
Some goods may not be accessed by the needy
Creation of income classes are created
Situations where firms can’t react to consumer demand (workers lack skills, geographical mobility)

Question 6

Private sector

Answer 6

economic sector owned by individuals and shareholders

Question 7

Public sector

Answer 7

economic sector owned by the government

Question 8

Allocative efficiency

Answer 8

When resources are allocated to produce the right products for the right quantity

Question 9

Productively efficient

Answer 9

When products are produced for the lowest possible cost per unit

Question 10

Dynamic efficiency

Answer 10

Occurs as a result of innovation and investment over time

Question 11

Market failure

Answer 11

When goods are not produced at the right quantities at the lowest possible cost. When markets are inefficient

Question 12

Social benefits

Answer 12

Private benefits + external benefits

Question 13

Social costs

Answer 13

Private costs + external costs

Question 14

Private costs/benefits

Answer 14

Costs and benefits for the producer and consumer

Question 15

External costs/benefits

Answer 15

The affecting of a third-party not involved in the production-consumption process

Question 16

Merit good

Answer 16

Products the government encourages the use of
(Underconsumed causing market failure)

Question 17

Demerit goods

Answer 17

Products the government disencourages the use of
(Overconsumed causing market failure)

Question 18

Public goods

Answer 18

Non-excludable goods produced by the government

Question 19

Monopoly power abuse

Answer 19

Causes market failure, not responding to consumer demand due to lack of competition

Question 20

Immobility of resources

Answer 20

Market failure created due to lack of allocative efficiency

Question 21

Short-termism

Answer 21

Market failure created by economic decisions for benefits in the short-run but negatively affecting the future.

Question 22

Maximum and minimum prices

Answer 22

To stop the buying of a product
To encourage the buying of a product
(by the government)

Question 23

GOVERNMENT MEARURES TO PREVENT MARKET FAILURE

Answer 23

Subsidies and taxes (promotes and demotes merit and demerit goods)
Create competition laws (prevent monopolies)
Environmental laws (prevent external costs)
LAWS - Regulation (prevent inefficient allocation of resources)
Nationalization of the private sector (benefit the public and improve the economy)
Direct provision (Governments give essential items like education, housing, food, to those in need) - access to basic necessities
Unfairness (not really market failure but to improve social welfare) - equity

Question 24

Government failure

Answer 24

Government intervention which can cause economic inefficiency

Question 25

Benefits and drawbacks of private sector

Answer 25

Will produce high quality for low cost
but may create monopolies

Question 26

Benefits and drawbacks of public sector

Answer 26

Will be monitored by government and be assessed of all costs and benefits
May have higher costs due to large budget. Also, lack of commercial experience