Economic Systems (IB)

4. What is the main reason an economy is unlikely to rely completely on market forces to allocate resources?

• 1. Demerit goods will be over supplied

• 1. Merit goods will be under supplied

• 1. Private goods will not be supplied

• 1. Public goods will not be supplied

Which aspect of a planned economy might be viewed unfavourably by a consumer but favourably by a producer?

• a bureaucratic system of decision-making

• an emphasis on the production of capital goods

• an absence of incentives to work and to produce

• a long response time to changing economic events

What is not a characteristic of a planned economy?

• Consumers have limited influence on what is produced.

• There is limited competition in the market.

• Profit is the motive for increasing output.

• Resources are owned by the government.

The transition of centrally planned economies to market economies was accompanied by a significant change in the composition of output.

What was an immediate consequence of this transition?

• a build-up of unsold stocks of goods

• an increase in exports of goods

• an increase in unemployment

• decreasing prices of goods and services

A government wants to move its economy away from central planning towards a market economy. Which policy would be consistent with this aim?

• introduce tariffs on imported goods

• privatise the ownership of electricity generation

• provide free education for primary school pupils

• reduce prices of foods such as wheat and rice

In which aspect is the planned economy likely to offer more than the market economy?

• competition

• incentive

• innovation

• security

The transition of the former Soviet Union from a planned economy towards a market economy was accompanied by a reduction in the proportion of incomes that households saved.

What could explain this?

• an increase in income inequality

• an increase in job insecurity

• increased availability of consumer goods

• the introduction of charges for hospital treatment

Which feature of travelling by road would be seen in a mixed economy but not in a pure market economy?

• bus services

• petrol (gas) stations

• streetlights

• toll bridges

1. What is not a characteristic of a mixed economy?

• 1. The government has no role in setting prices

• 1. The government manages taxation rights

• 1. The government prevents firms from earning excessive profits

• 1. The government provides services not provided by the private sector

Match the types of the economies with their features:

Groups:

(a) Command economy

,

(b) Free market economy

• Public sector plays the central role in allocation of resources

• Resources are allocated by the price mechanism

• There is wasteful competition

• The primary goal is maximising social welfare

• Decision-making process takes longer due to bureaucracy

• Merit goods are more likely to be produced

• Inequality is rampant

• Choices are abundant

• Public goods aren't provided

• Loss-making industries continue to operate