Podcast
Questions and Answers
In a market economy, how are resources primarily allocated?
In a market economy, how are resources primarily allocated?
- By government decree and central planning.
- By a combination of government planning and market forces.
- According to demand and supply without government intervention. (correct)
- Based on traditional customs and social norms.
In a market economy, the government plays a significant role in directly controlling prices and production levels.
In a market economy, the government plays a significant role in directly controlling prices and production levels.
False (B)
What term describes the idea that businesses in a market economy will try to meet consumer's needs and wants?
What term describes the idea that businesses in a market economy will try to meet consumer's needs and wants?
consumer sovereignty
A key advantage of a market economy is that it creates __________ to work hard, as individuals and businesses are rewarded for their efforts.
A key advantage of a market economy is that it creates __________ to work hard, as individuals and businesses are rewarded for their efforts.
Which of the following is NOT a typical characteristic of a market economy?
Which of the following is NOT a typical characteristic of a market economy?
Goods that cause pollution are likely to be under-provided in a free market system.
Goods that cause pollution are likely to be under-provided in a free market system.
According to the content, what is one way to determine how 'free market' an economy is?
According to the content, what is one way to determine how 'free market' an economy is?
Defence is described as a ______ good, that only the government can provide.
Defence is described as a ______ good, that only the government can provide.
Which of the following is a potential disadvantage of free market systems?
Which of the following is a potential disadvantage of free market systems?
Match the country with its economic system's characteristics:
Match the country with its economic system's characteristics:
Flashcards
Market Economic System
Market Economic System
An economic system where resources are allocated based on demand and supply, without government intervention. Businesses compete for customers.
Consumer Sovereignty
Consumer Sovereignty
The idea that businesses will always try to meet consumer needs and wants to maximize profits, leading to a wide variety of goods and services.
Efficiency in Market Systems
Efficiency in Market Systems
Businesses seek to offer low prices by increasing productivity and reducing waste, lowering the cost per unit.
Incentives to Work Hard
Incentives to Work Hard
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Merit Goods
Merit Goods
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Over-Provided Goods
Over-Provided Goods
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Inequality of Income and Wealth
Inequality of Income and Wealth
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Public Goods
Public Goods
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Study Notes
- Market Economic System Definition: Resources are allocated by demand and supply forces, with no government intervention and private sector businesses compete
Characteristics of a Market Economy
- Numerous buyers and sellers compete
- Consumers maximize utility from goods
- Businesses maximize profit
- Private ownership of resources exists, like shareholders or sole traders owning businesses
- Minimal government role exists, limited to law, order, and defense
- Resource allocation is based on the price mechanism (supply and demand)
Advantages of the Market System
- Increased consumer choice, also known as consumer sovereignty, exists
- Profit-maximizing businesses meet consumer needs, driving businesses to compete and innovate with new products
- Competition drives businesses to offer low prices, increasing efficiency, reducing waste, increasing productivity, and decreasing average production costs
Incentives to work hard
- Higher wages motivate longer or harder work hours
- Potential for higher profits drives entrepreneurs; Free market proponents advocate low taxes to incentivize work
- Businesses bear costs, and customers are charged prices
How "Free Market" Is Measured
- Government spending as a percentage of GDP acts as an indicator
- Lower percentage indicates a more free market economy
- Singapore and Ireland exemplify free market approaches
- Finland and France feature more state intervention
Disadvantages of Free Market Systems
- Insufficient provision of certain goods, education may become unaffordable turning schools into profit-seeking entities
- Defence, a public good, is only provided by the government
- Healthcare, a merit good, along with education is under-provided in a free market
Over-Provision of Goods
- Certain goods, such as cigarettes and air travel, that cause pollution or are harmful can be over-provided
- Free markets can harm the environment
Inequality of Income and Wealth
- The system can result in income and wealth disparities, leading to poverty and perceived inequity
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