economic systems

• What is another term for a market economy?

  Capitalism
• A command economy is also known as a centrally planned
• In a market economy, the private sector owns all resources.
• What is the primary motive of private firms in a market economy?

  Maximize profit
• In a command economy, the public sector aims to maximize social welfare
• Freedom of choice is higher in market economies than in command economies.
• What determines production decisions in a market economy?

  Consumer and producer demand
• Match the economic system with its key feature:

  Market economy ↔️ High competition

  Command economy ↔️ Government control of resources

  Mixed economy ↔️ Combines market and command features
• The role of government is low in market economies but high in command economies
• The quality of goods and services is generally higher in market economies due to profit incentives.
• Why is response to demand quicker in market economies?

  Profit motive
• Order the steps involved in responding to a change in demand in a market economy:

  1️⃣ Increase in consumer demand

  2️⃣ Firms identify opportunity

  3️⃣ Production increases

  4️⃣ Consumer needs are satisfied
• What type of efficiency is achieved when consumer needs are met in a market economy?

  Allocative efficiency
• Market failures in a market economy can lead to inefficiency
• Command economies are less likely to suffer from market failures than market economies.
• Why may shortages or surpluses exist in command economies?

  No price mechanism
• Merit goods are underprovided in market economies due to self-interest and lack of information.
• What type of goods are likely to be overprovided in a market economy?

  Demerit goods
• Public goods may not be allocated at all in free markets
• Income inequality is generally lower in command economies compared to market economies.
• What is a key tool to reduce income inequality in a mixed economy?

  Progressive taxation
• Negative externalities in market economies are often ignored due to profit maximization
• Monopolies are more likely to exist in market economies than in command economies.
• What is the government's role in addressing monopolies in mixed economies?

  Regulate monopolies
• Countries like the USA and Singapore are examples of market economies.
• North Korea and Cuba are examples of command economies.
• Mixed economies combine features of market and command systems
• What type of economy do most countries in the world have?

  Mixed economies
• Market-oriented economies always eliminate the need for government intervention.

  False