Economic Systems: Command vs. Market

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Questions and Answers

Which of the following is a distinguished feature of a command system?

Widespread dispersion of economic power

Heavy reliance on markets

Central planning (correct)

Private ownership of all capital

Which of the following is a distinguished feature of laissez-faire capitalism?

Central planning

Minimal government intervention (correct)

A circular flow of goods, resources, and money

Public ownership of all capital

Examples of command systems include:

The United States and Japan

Sweden and Norway

Mexico and Brazil

Cuba and North Korea (correct)

What are the two main characteristics that economics systems differ according to?

Who owns the factors of production and the methods used to coordinate economic activity Signup and view all the answers

Which of the following is not a typical characteristic of a market system?

Government ownership of most property resources Signup and view all the answers

What does 'freedom of enterprise' mean in a market system?

Allows business, within broad limits, to choose what goods to produce Signup and view all the answers

The use of money contributes to economic efficiency because:

It promotes specialization by overcoming the problems with barter Signup and view all the answers

The competitive market system encourages innovation because:

Successful innovators are rewarded with economic profits Signup and view all the answers

The market system's answer to the fundamental question 'What will be produced?' is essentially:

Goods and services that are profitable Signup and view all the answers

The market system's answer to the fundamental question 'How will the goods and services be produced?' is:

In ways that minimize the cost per unit of output Signup and view all the answers

All of the following statements describe a market economy except:

Government prescribes the market prices for goods and services Signup and view all the answers

In a market system, resources will move away from an industry when:

Demand for the industry's product is decreasing Signup and view all the answers

In a circular flow model of the market system, households' major role is to:

Buy products and sell resources Signup and view all the answers

According to the circular flow model, product markets are where:

Business earn their revenues from households Signup and view all the answers

Which of the following guides sensible decisions regarding the management of business risk in a market system?

The profit and loss system Signup and view all the answers

Study Notes

Command Systems vs. Market Systems

Command systems feature central planning, where economic decisions are made by a central authority rather than relying on market forces.
Laissez-faire capitalism is characterized by minimal government intervention, emphasizing free-market principles.

Examples of Economic Systems

Command systems are exemplified by nations such as Cuba and North Korea, where government control is prevalent.
Major variations in economic systems are determined by ownership of production factors and the coordination methods employed for economic activity.

Characteristics of Market Systems

Typical characteristics of a market system include private property, freedom of enterprise, and competition. However, government ownership of most property resources is not typical.
In a market system, freedom of enterprise allows businesses the flexibility to decide what goods to produce, fostering innovation.

Role of Money in Economic Efficiency

The use of money enhances economic efficiency by promoting specialization and addressing barter limitations.
Money is vital for facilitating roundabout production methods and is necessary for creating capital goods.

Competitive Market System

The competitive market system incentivizes innovation, as successful businesses can reap economic profits from new products and productive techniques.
Market responses to "what will be produced?" focus on producing profitable goods and services.

Production Methods in Market Systems

The fundamental question of "how will goods and services be produced?" in market systems emphasizes efficiency, aiming to minimize cost per unit of output.
Market economies operate on the principle that prices communicate important signals, guiding resource allocation and production decisions based on supply and demand.

Circular Flow Model

Households play a vital role in the circular flow model by buying products and selling resources.
Product markets serve as platforms where businesses earn revenues from households, while households acquire economic resources from businesses in resource markets.

Management of Business Risk

Sensible business risk management in market systems is guided by the profit and loss system, which informs decision-making based on the financial performance of operations.

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Description

Explore the key differences between command and market economic systems in this quiz. Understand the implications of central planning versus free-market principles and learn about real-world examples of each system. Test your knowledge on the characteristics that define these economic frameworks.