Economic Systems

Question 1

Different Economic Systems

Answer 1

1. Market (capitalist system, free enterprise system, laissez-faire economy)
2. Planned (Command, centrally planned)
3. Mixed (regulated market economy)

Question 2

Market Economy

Answer 2

In a market economy, there is minimal or no government intervention. This economic system is also known as the capitalist system, the free enterprise or laissez-faire economy. The private sector makes economic decisions with minimal or no government intervention.

Question 3

Assumptions of Market Economies

Answer 3

1. Land and capital is owned by the private sector.
2. Consumers and producers have the freedom to make their own choices.
3. Consumers want to get the best value for money when making consumption decisions.
4. Producers are driven by the profit motive.
5. Workers want to maximise the wages they recieve for the effort they put into their jobs.

Question 4

Advantages of Market Economies

Answer 4

• Consumer sovereignty- the consumers demand or willingness to pay for a good determines what is to be produced.
• More variety and better qualities
• New inventions and innovations- Producers would want to invest more in research and development to invent new products or improve existing products. Improved products will lead to greater sales and higher profit
• Higher efficiency- firms would want to use resoucres efficiently to minimise costs which maximises prodit. If Perfect competiton exists in the market economy, production efficieny will be achieved.

Question 5

Disadvantages of market economies

Answer 5

1. Inequality- some firms will be sucessful in achieving high profitability while other will not. There is an uneven distribtuion of income resulting in groups of wealthy people and people in the poverty line.
2. Dangerous products- goods such as alcohol which are injurious to human health are produced by firms
3. lack of public goods- goods such as streetlight, roads, lighthouses would not be provided
4. monopoly and imperfect competition- some producers may exploit consumers financially. some resources would not be used efficiently.

Question 6

Command or Planned Economy

Answer 6

the goverment takes all the economic decisions. Land and capital cannot be owned by private individuals. All prices are set and controlled by the government (price floor price ceiling)

Question 7

Aspects of Planned and Market System

Answer 7

full employment of labour most efficient use of resources HOW

produce good beneficial to its citizens and that cost the least to produce WHAT

WHOM
everyone egalitarian equity

WHAT
Producers are willing to produce goods that consumers demand and are willing to pay for

HOW
at the cheapest cost possible, there is not full employment. Producers want to maximise profit, therefore wages will be low, inequality is rampant

WHOM
For consumers, those who can afford. Distribution of goods and services is determined by income

Question 8

Advantages of Planned Economies

Answer 8

• Full employment- the state may choose to fully utilise all available resources which means that there is neither unemployment nor idle production facilities.
• Equality is achieved- the planned economy essentially tries to create a society where all individuals have the same income. Therefore, there are no major disparities in the income levels of workers throughout the economy.

Question 9

Disadvantages of Planned Economies

Answer 9

• Lack of choices for consumers- consumers have to buy whatever goods and services that are produced by the government. THis reduces consumers’ economic welfare.
• Complacency- The workers tend to be complacent as there is no incentive or motivation to work harder. unlike in a market system, in a commad system an increase in effort will not lead to an increase in wages
• Government may produce goods not required by the people- government may produce more military equipment to meet its defence policy
• Low quality goods and services

Question 10

Mixed Economy

Answer 10

Or the regulated market economy is a mixture of both the market economy and the planned economy. The mixed economy combines the best of the market economy and the planned economy.

All English-speaking Caribbean economies can be classified as mixed economies. Where steetlighting, defence and roads fall under direct control of the state/government. Some services such as education or healthcare is provided by both the private and public sector. And all other goods and services are provided by the private sector.