Podcast
Play an AI-generated podcast conversation about this lesson
Download our mobile app to listen on the go
Get App
Questions and Answers
Which of the following best describes a market economy compared to a centrally planned economy?
Which of the following best describes a market economy compared to a centrally planned economy?
- There is no difference between a market economy and a centrally planned economy.
- In a market economy, firms and households drive the economy with minimal government intervention, while in a centrally planned economy, the government makes economic decisions. (correct)
- Both market economies and centrally planned economies rely on government intervention.
- In a market economy, the government makes economic decisions, while in a centrally planned economy, firms and households drive the economy.
What is the role of institutions in a market economy?
What is the role of institutions in a market economy?
- Institutions regulate prices and control the flow of goods and services.
- Institutions determine the distribution of wealth in a market economy.
- Institutions have no role in a market economy.
- Institutions enforce property rights and maintain the rules of the market. (correct)
What is productivity?
What is productivity?
- The ability of a country to trade goods and services.
- The ability of a country to produce goods.
- The ability of a country to produce goods and services. (correct)
- The ability of a country to consume goods and services.
Which of the following statements is true about a market economy?
Which of the following statements is true about a market economy?
Signup and view all the answers
What is the main difference between a market economy and a centrally planned economy?
What is the main difference between a market economy and a centrally planned economy?
Signup and view all the answers
Flashcards are hidden until you start studying
Study Notes
Market Economy vs. Centrally Planned Economy
- A market economy relies on supply and demand to allocate resources, while a centrally planned economy relies on government directives.
- In a market economy, decisions on production and investment are made by private individuals and businesses, promoting competition and innovation.
- A centrally planned economy has the government making all significant economic decisions, often leading to inefficiencies and lack of responsiveness to consumer needs.
Role of Institutions in a Market Economy
- Institutions such as banks, regulatory bodies, and legal systems provide the framework for economic transactions.
- They enhance market efficiency by protecting property rights, enforcing contracts, and maintaining competition.
- Strong institutions foster trust in the market, encouraging investment and economic growth.
Productivity
- Productivity measures the efficiency of production, typically quantified as the ratio of outputs to inputs in the production process.
- High productivity indicates that more goods and services are produced with the same amount of inputs, leading to economic growth and improved living standards.
- It is influenced by factors such as technology, workforce skill levels, and capital investment.
True Statements about a Market Economy
- Resources are allocated through voluntary exchanges in markets, allowing prices to reflect supply and demand.
- Market economies generally lead to greater innovation and higher consumer choice compared to centrally planned economies.
- Individuals and businesses operate with the motivational incentives of profit, driving efficiency and resource optimization.
Main Difference Between Market Economy and Centrally Planned Economy
- The fundamental difference lies in decision-making: market economies emphasize individual choice and competition, whereas centrally planned economies emphasize government control and planning.
- Market economies are characterized by decentralized decision-making, while centrally planned economies feature concentrated authority.
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
