0455 Economics Economic System, Money and Banking Practice

what is a disadvantage of a market economic system?

• entrepreneurs lack incentives to produce what consumers want

• government intervention will reduce the efficiency of firms

• market dominance by firms can lead to higher prices

• there is underproduction of demerit goods

Cuba is implementing free market reforms. What is a likely advantage f this?

• a wider variety of goods and services produced

• greater equality between the different groups in society

• increased provision of public goods

• less consumption of goods with external costs

what is essential feature of a market economy?

• central planners determine what, how and for whom to produce.

• it aims for equality in the distribution of goods and services.

• the market price reflects both the private and external costs of production.

• the price mechanism sends signals to consumers and producers to allocate resources.

what is a major advantage of a market economic system over a mixed economic system?

• all production of goods and services is determined by consumer demand

• ownership of resources is divided between private and public sectors

• producers include any external costs they create in the price of the good

• there will always be an even distribution of income and wealth

an economy relies of potash to make fertilizer. A new deposit of potash is discovered. Which diagram shows this change in the market for potash?

• 
• 
• 
• 

what is meant by the equilibrium price in the market for a good?

• the average price paid by consumers

• the price at which maximum profit is made

• the price at which the producer breaks even

• the price at which the supply and demand curves intersect

the market for a good was in equilibrium. A change occurred which resulted in a new equilibrium with a higher price for the good and a lower quantity traded.

What change would have caused this?

• the demand curve moved to the left

• the demand curve moved to the right

• the supply curve moved to the left

• the supply curve moved to the right

Government sometimes intervene in the economy when the market fails. What is the most likely reason why government intervention may make the situation worse?

• government decisions can take a long time to have an effect

• government consider the views of both consumers and producers

• government have more resources to calculate costs and benefits than private firms

• government may take decisions to reduce negative externalities

what function does a central bank fulfill?

• issues currency

• offer overdraft facilities to individuals

• operates deposit accounts

• raises taxation

what is the usually reason why citizens trust their country's banknotes?

• they are acceptable for trade and exchange

• they are backed by gold at the central bank

• they are convertible into the USD or CNY

• they are recognizable and in infinite supply