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level: Markets and Economies

Questions and Answers List

level questions: Markets and Economies

QuestionAnswer
What do Markets do? How does this Work?-Markets try and Allocate Resources. -Buyers and Sellers in a Market will try to Exchange something they'd prefer to have. Labour can be Exchanged for a Salary
If Markets are considering that Everyone is Rational, what can be Assumed?-Worker would prefer to have More Wages, but less Free Time -Employers would Prefer to have Less Money, and know someone is there to do the Work
What is a Free Market?-Free Markets are when Resources are Allocated via Supply and Demand, and the Price Mechanism -Anything will be Sold at Any Price that people will Pay for it -No Public Sectors would be Present
What are the Advantages of Free Markets?-Any Product being able to be Bought and Sold can mean only the Best Value will be Demanded. Therefore Firms must Incentivise to make Goods Efficiently and Quality -Good Ideas, like making Better Products or Efficiency, is Rewarded through a Lot of Money. -Incentives from Innovation [that come from how Good Ideas can be Handsomely Rewarded] can mean a Greater Choice for Consumers. Not Restricted to buying Gov Recommendation
What are the Flaws of Free Markets?-Market Economies can create Huge Inequality in Income. Can be seen as Unfair as people Unable to work would get 0 Income -Non-Profitable Goods may not be made as Firms may not be able to get a Profit: Little Incentive -Some Successful Firms can create a Monopoly and be the Only Supplier of the Product: can be Abused
What is a Command Economy?-Governments decide on How the Resources are Dished out. -Was seen in the Soviet Union, and is in North Korea -No Private Sector would be seen
What are the Advantages of a Command Economy?-Inequality and Distribution of Income can be made very Fair and Equal. Also means the Production of Goods that are Needed and Benefits Society -Unemployment can be made Low as the Government can Provide all with a Job and Salary -No Monopolies being set up as the Government allocates the Resources, so can Dictate really who Supplies the Product
What are the Flaws of a Command Economy?-Lack of Information can lead to Bad and Slow Decisions about what needs to be Produced -Consumers will have less of a Choice as Firms are being told what to Make -Gov owned Firms have no Incentive to Improve Efficiency, Take Risks, or Innovate as they don't get any Reward [Profit]
What are Market Failures? How may the Government Intervene?-Market Failure is when Free Markets leads to Unwanted Outcomes [Over or Under Produced/Consumed] -Governments may change the Law, offer Tax Breaks, Create Incentives to change Behaviour or Providing and Subsidising Goods and Services
What is a Mixed Economy?-When the Government and the Market Intervene to Allocate Resources
What is the Public and Private Sector?-The Public Sector is basically the Government -The Private Sector as Firms that aren't owned by the Government but by Individuals.
What did Adam Smith Say and Believe In? 1723-->1790-Shaping the Traditonal Economic Theory, Smith believed in the Free Market and how the 'Invisible Hand' would Allocate Resources in the Best Way Possibly -Reasoning was how Consumers and Firms are thinking about how to Maximise their Own Benefits and Profit. In the Free Market, the Consumers Demand, and Firms Supply, will lead to a Price that Satisfy both Parties. -Monopiles can't Exist, and Low Barriers should be made to Maximise Competition [as Innovation and Efficiency Skyrocket] -Smith also Mentioned Specialisation and Division of Labour
What did Karl Max Say and Believe In? 1818-1883-Criticising the Free Market, saying a Small Ruling Producers had Dominance over the Working Class [Bourgeoisie vs Proletariat] -Profit Maximisation Behaviour would Exploit Workers [Low Wages ie] until a Revolution took place. This would lead to the Proletariats Controlling in the Ownership of Resources -Marx led to Communism rising, but Marx didn't say much about Command Economies.
What did Friedrich Hayek Support and Believe In? 1899-1992-Supporter of Free Market; Nay to Command Eco. -Argued that Govs should not Intervene to Allocate as Govs don't have the Information to Allocate in a way to Benefit Society Greatest, but Rather Consumers and Firms have Best Knowledge on their Needs and Wants, so it should be left to Them -Hayek saw the Pricing Mechanism a way to 'Communicate' - Price Level set by Supply & Demand showing what Consumers and Firms Want, and therefore will Naturally Allocate Resources Better