Economics Systems

Question 1

What are command economies?

Answer 1

In command economies all resources are allocated by the government e.g. North Korea

Question 2

Who supported command economies and why?

Answer 2

Marx supported command economies as resources can be spread equally, it avoids capitalism.

Question 3

Advantages of command economies.

Answer 3

+ Prioritises social welfare.
+ There is more equality as everyone has the same wage.
+ Prevents market failure.

Question 4

Disadvantages of command economies.

Answer 4

• Can lead to government failure.
• Destroys incentives like individual initiative (same wage for everyone).
• Discourages innovation leading to limited choices.

Question 5

What are mixed economies?

Answer 5

In mixed economies resources are allocated by the price mechanism and government e.g. Current UK

Question 6

What is the role of the state in mixed economies?

Answer 6

Provide public goods/services

Maximise welfare

Stabilise through government intervention.

Question 7

What is a free market?

Answer 7

Where resources are allocated through the price mechanism, free from government intervention.

Question 8

Who supported free market economies and why?

Answer 8

Smith believed the “invisible hand” would allocate resources efficiently.

Question 9

Advantages of free market economies.

Answer 9

+ It is allocative efficient as the price mechanism sets everything right
+ Lower prices due to competing producers cutting costs and improving efficiency.
+ Increase in consumer choice.

Question 10

Disadvantage of free market economies.

Answer 10

• Inequality
• Monopolies can raise prices and reduce competition leading to inefficiency.
• Public goods are under provided.