Economic Systems Quiz

Which of these terms describes a country where government planning, regulations and directives are responsible for the allocation of resources?

• A capitalist economy

• B mixed economy

• C market economy

• D planned economy

Answer explanation

The characteristics given in the question can only apply to a planned economy. All other types of economy have some role for the market

A criticism of a planned economy is that it puts more emphasis on producing capital goods than producing consumer goods. This is because:

• A the system of decision-making is too centralised.

• B there are shortages of many consumer goods.

• C the government's focus is on growth and not current consumption.

• D consumers cannot afford to buy any more consumer goods.

Answer explanation

B and D are consequences of the emphasis when producing capital goods rather than consumer goods. A is a general statement only. C is a common criticism of a planned economy.

A planned economy has recently become a mixed economy. This process has involved a change in the composition of what it produces. What is the most likely consequence of this change?

• A an increase in food prices

• B an increase in imports

• C an increase in structural unemployment

• D an increase in the growth rate of the economy

Answer explanation

The second sentence of the question gives a strong hint as to the correct answer. It refers to the "composition" of what is produced. A, B, and D may well come true, but they are not consequences of the changing composition of an economy.

A mixed economy can best be described as one in which:

• A production is determined by the central government and the market mechanism.

• B agricultural and manufactured goods are produced.

• C production is determined by entrepreneurs.

• D consumer goods and capital goods are produced.

Answer explanation

B, C, and D are all features of a mixed economy. In contrast, A is the correct answer as it is looking at the mixed economy in an overall way.

Which of these is the most likely outcome when a mixed economy privatises its rail services?

• A Peak train fares will increase.

• B Off-peak train fares will decrease.

• C Fewer rail services will be provided.

• D Train fares will now be determined by supply and demand.

Answer explanation

PD is the most likely option since it recognises that market forces will now determine rail fares following privatisation. A, B, and C may well be particular outcomes from privatisation, but they are by no means certain.

After a planned economy changed to a more market economy, there was a reduction in the proportion of household income that was being saved. How might this be explained?

• A Households were more concerned about the economy's future economic prospects.

• B More 'big ticket' goods had become available.

• C New charges were introduced for secondary education.

• D Household incomes fell.

Answer explanation

A fall in the proportion of household income that is saved means that there will be an increase in the proportion of income that is consumed. B is indicative of how the increased proportion could be spent. C is ruled out because not all consumers will need increased consumption of merit goods. D is not possible since a fall in income will lead to less consumption of superior goods. A is irrelevant.