1.2 Resource Allocation and Economic Systems

• Resource allocation is the process by which scarce resources are assigned to different productive uses
• Resources are allocated through the price mechanism in a command economy.

  False
• Match the resource allocation method with its mechanism:

  Market Allocation ↔️ Supply and demand

  Command Economy Allocation ↔️ Central planning

  Mixed Economy Allocation ↔️ Market and government

  Traditional Economy Allocation ↔️ Customs and traditions
• In a market economy, what dictates the production and price of coffee?

  Demand for coffee
• Scarcity arises because unlimited human wants exceed limited resources
• Higher prices for scarce goods in a market economy encourage overconsumption.

  False
• Which economic system relies on central planning by the government to allocate resources?

  Command economy
• Resources in a market economy are allocated based on the price mechanism
• North Korea is an example of a mixed economy.

  False
• Match the economic system with its example:

  Market economy ↔️ United States

  Command economy ↔️ North Korea

  Mixed economy ↔️ Germany

  Traditional economy ↔️ Indigenous communities
• What is a disadvantage of a command economy in resource allocation?

  Lack of innovation
• Scarcity necessitates resource allocation to prioritize needs and make choices
• Market economies address scarcity by allowing prices to adjust based on supply and demand.
• What might a mixed economy do to address water scarcity in a desert region?

  Subsidize agriculture
• What fundamental economic problem does scarcity create?

  Resource allocation
• Different economic systems handle scarcity in different ways
• Market economies address scarcity by allowing prices to rise for scarce goods.
• How does a command economy address scarcity?

  Central planning
• Match the economic system with its method of addressing scarcity:

  Market ↔️ Higher prices for scarce goods

  Command ↔️ Priorities set by government
• In a region with water scarcity, a mixed economy might subsidize agriculture
• Understanding scarcity is crucial for analyzing economic policy effectiveness.
• What are economic systems used for in societies?

  Managing resources
• In a market economy, resources are allocated based on the price
• Match the economic system with its key characteristic:

  Command ↔️ Government control

  Mixed ↔️ Regulation for fairness
• Traditional economies rely on social cohesion and stability.
• How does each economic system affect resource allocation?

  Influences production and distribution
• What are examples of countries with command economies?

  North Korea, Cuba
• Mixed economies combine central planning with market forces
• What role do prices play in resource allocation in market economies?

  Signals, incentives, rationing
• High prices incentivize producers to increase supply
• How does a rise in coffee prices affect resource allocation in a market economy?

  Encourages production, reduces consumption
• What is the definition of resource allocation?

  Assigning scarce resources
• Market allocation is guided by the price mechanism
• Match the resource allocation method with its key mechanism:

  Market ↔️ Supply and Demand

  Command ↔️ Central Planning
• In a command economy, the government sets production quotas for goods.
• Why is understanding resource allocation important for economists?

  Analyze economic systems and policies
• In a market economy, higher prices for scarce goods discourage overconsumption
• What is a disadvantage of a command economy in addressing scarcity?

  Inefficient response to needs
• Steps to address water scarcity in a mixed economy region:

  1️⃣ Tax wasteful industrial use

  2️⃣ Subsidize agriculture

  3️⃣ Prioritize domestic use
• Economic systems are frameworks that manage resources and allocate goods and services