Cambridge IGCSE · Economics (0455)

The role of markets in allocating resources: Practice Questions

5 multiple-choice questions marked as you go, and 5 written questions with worked solutions. All on The role of markets in allocating resources.

10 questions25 marksFree, no account

Question 1

1 mark

In a market economy, what is primarily responsible for signalling to producers what consumers wish to buy?

Question 2

1 mark

In a market economy, how are the three fundamental economic questions (what to produce, how to produce, and for whom to produce) primarily answered?

Question 3

1 mark

When a shortage of a product causes its price to rise, how does the price mechanism help to allocate resources more efficiently?

Question 4

1 mark

In a market economy, the fundamental economic problem requires decisions about resource allocation. Which of the following represents the three key questions that need to be answered regarding resource allocation?

Question 5

1 mark

A manufacturing firm decides to replace labour with capital-intensive machinery because the market wage rate for workers has increased significantly. Which fundamental resource allocation decision is being addressed by the price mechanism in this scenario?

Question 6

2 marks

In a market economy, what signal is provided to producers when there is an increase in consumer demand for a product, and how does this impact the allocation of resources?

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Question 7

3 marks

When a market is in a state of disequilibrium such that there is a shortage, explain what happens to the market price to restore the allocation of resources to equilibrium.

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Question 8

5 marks

Analyze how the price mechanism specifically addresses the fundamental economic question of 'for whom to produce' within a market economy.

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Question 9

4 marks

All economic systems must have a method for allocating scarce resources to satisfy unlimited wants. In a market economy, this is primarily achieved through the price mechanism.

(a) Identify the three fundamental economic questions that every resource allocation system must answer. (3 points)

(b) State one role that buyers play in a market system. (1 point)

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Question 10

6 marks

A country is transitioning from a planned economy to a market economy. The government is interested in how the price mechanism will handle the allocation of scarce resources.

(a) Analyse how the price mechanism uses market equilibrium and disequilibrium to allocate resources efficiently. (4 points)
(b) Discuss two advantages of using a market system over a planned system for resource allocation. (2 points)

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