Advantages and Disadvantages of the Market System

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What is a potential consequence of arbitrary decisions in resource allocation, according to the text?

Arbitrary decisions will not be able to make the best use of resources.

How do guaranteed employment and lack of profit sharing affect worker motivation, as stated in the text?

Workers with guaranteed employment and managers who gain no share of profits are difficult to motivate.

What is the primary reason why factors of production may not be employed in a market system?

If it is not profitable to do so.

What is a potential drawback of a command economy, in terms of personal liberty and freedom of choice?

The dominance of the government may lead to a loss of personal liberty and freedom of choice. Signup and view all the answers

How does a planned economy differ from a market system in terms of resource ownership?

In a planned economy, all resources are collectively owned, whereas in a market system, resources are privately owned. Signup and view all the answers

What is a key reason why mixed economies are necessary, according to the text?

To create employment opportunities, provide public goods and merit goods, stop people consuming harmful goods, and consider the environmental cost. Signup and view all the answers

How does the government's role in a mixed economy address the limitations of the free market?

The government intervenes to provide public goods and merit goods, stop people consuming harmful goods, and consider the environmental cost. Signup and view all the answers

What is a potential consequence of the lack of a price system in a planned economy?

Resources will not be used efficiently. Signup and view all the answers

How does the market system respond to changes in people's wants, compared to a planned economy?

The market system responds quickly to changes in people's wants, whereas a planned economy is slower to respond due to its centralized decision-making process. Signup and view all the answers

What is true about all economies, according to the text?

All economies are mixed economies, with varying degrees of government involvement. Signup and view all the answers

What is a potential social consequence of the market system?

The market system allocates more goods and services to those who have more money, which can lead to social inequality. Signup and view all the answers

What is a potential disadvantage of the market system in terms of the type of goods and services produced?

The market system may encourage the consumption of harmful goods. Signup and view all the answers

What is the primary function of a market in a market economy?

To enable the needs and wants of both parties to be fulfilled while establishing a price and allowing an exchange to take place. Signup and view all the answers

How do firms in a market economy decide what goods to produce?

By producing only those goods which the consumers want, as indicated by the price mechanism. Signup and view all the answers

What is the role of prices in a market economy?

To act as a signal to firms, indicating what goods are in demand and what goods are not, and thereby guiding resource allocation. Signup and view all the answers

How do firms in a market economy aim to maximize profit?

By producing goods in the cheapest possible way, while still meeting consumer demand, and by producing goods that are in demand. Signup and view all the answers

What is the key difference between a market economy and a command economy?

In a market economy, resources are privately owned and allocation is determined by market forces, whereas in a command economy, resources are publicly owned and allocation is determined by the government. Signup and view all the answers

What problem does the market mechanism solve in a market economy?

The problem of what, how, and for whom to produce. Signup and view all the answers

Advantages and Disadvantages of the Market System

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