Exam code: 0455 & 0987
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Define market economy.
A market economy is an economy where resource allocation and distribution of goods and services are determined by market forces without government intervention.
What is another term for a market economy?
A market economy is also called a free market economy.
True or False?
A pure free market economy exists in the world today.
False.
There is no purely free market economy in the world; all economies have some level of government intervention.
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Define market economy.
A market economy is an economy where resource allocation and distribution of goods and services are determined by market forces without government intervention.
What is another term for a market economy?
A market economy is also called a free market economy.
True or False?
A pure free market economy exists in the world today.
False.
There is no purely free market economy in the world; all economies have some level of government intervention.
Define price mechanism.
The price mechanism is the process by which changes in prices allocate scarce resources in a market economy.
What does freedom of choice mean in a market economy?
Freedom of choice means that individuals, firms, workers, and consumers are free to make their own economic decisions regarding what to produce, who to work for, and what to consume.
True or False?
In a market economy, entrepreneurs maximise profits, workers maximise wages, and consumers maximise satisfaction.
True.
In a market economy, self-interest is maximised by these groups.
List two advantages of a market economy.
Two advantages of a market economy are that it encourages competition, leading to better quality and lower prices, and it provides a greater variety of goods and services.
Which feature of a market economy leads to innovation and product development?
Competition in a market economy encourages innovation and product development.
True or False?
A disadvantage of a market economy is that it may increase inequality.
True.
Market economies can lead to greater inequality as wealth becomes concentrated in the hands of a few.
Name one disadvantage of a market economy related to the environment.
A market economy may lead to resource depletion and environmental degradation because these issues are often ignored when firms focus on profit.