Resource allocation in different economic systems: Practice Questions

In which economic system are the rewards for the factors of production determined purely by the forces of demand (\( D \)) and supply (\( S \))?

In a transition from a planned economy to a market economy, which change is most likely to cause an increase in the price of basic foodstuffs in the short run?

An economy is transitioning from a planned to a market system and decides to undergo privatisation. What is the most likely allocative reason for this policy change?

In a planned economy, who is responsible for answering the basic economic question of "what to produce"?

Which statement best describes how the 'for whom to produce' question is resolved in a pure market economy?

Explain why a mixed economic system typically involves both a private sector and a public sector in the allocation of resources.

Explain why a planned economy may achieve higher allocative efficiency for merit goods than a market economy, and why this might lead to government failure in the long run.

In the transition from a planned economy to a market economy, explain why the method of answering the 'how to produce' question shifts from administrative directives to the principle of cost minimization.

(a) Define the terms market economy and planned economy.

(b) Explain how the market mechanism addresses the three basic economic questions of 'What to produce?', 'How to produce?', and 'For whom to produce?' in a pure market economy.

(a) Explain how the price mechanism in a market economy answers the basic economic question of 'for whom to produce'.

(b) Discuss whether the transition from a planned economy to a mixed economy is more likely to result in a more efficient allocation of resources or a more equitable distribution of income.