What is a market economy?
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What is a market economy?
A market economy is an economy with no government intervention in the allocation of resources or the distribution of goods and services.
What determines the type of economic system?
The type of economic system is determined by how the three economic questions are answered:
What to produce?
How to produce?
For whom to produce?
State the meaning of a planned economy.
A planned economy is an economy where the government has complete control over economic decisions.
State two disadvantages of a market economy.
Two disadvantages of a market economy include any of the following:
Workers get exploited
Resource depletion and environmental degradation are often ignored
This increases inequality, such that the gap between the rich and the poor continues to grow
Wealth gets concentrated in the hands of the few as they are able to keep buying up the scarce factors of production
Define the phrase freedom of choice in a market system.
Freedom of choice means firms and individuals are free to make their own economic decisions.
What does self-interest mean in a market system?
Self-interest means entrepreneurs maximise profits, workers maximise wages, and consumers maximise satisfaction.
State the role of the price mechanism.
The price mechanism allocates scarce resources, with rising prices indicating a shortage and falling prices indicating a surplus.
True or False?
Market economies have no government intervention.
True.
Theoretically, market economies have no government intervention. In reality, there is no pure market economy. More free market economies have a low level of government intervention in areas like taxation, defence, healthcare, and education.
What is the advantage of the profit incentive?
The profit incentive motivates people to work or develop entrepreneurial ideas.
How does competition impact product quality?
Competition often improves product quality. However, sometimes product quality falls as firms lower quality standards in order to increase profits.