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2.2 - 2.9 The Role of Markets in Allocating Resources

IGCSE Economics worksheet

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Bilal Mahmood Khan
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22 views5 pages

2.2 - 2.9 The Role of Markets in Allocating Resources

IGCSE Economics worksheet

Uploaded by

Bilal Mahmood Khan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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2.2 and 2.

9 The role of markets in allocating resources & market economic systems

The role of markets in allocating resources

What do I need to know?


● Understand how a market system functions
● Understand that the economic problem creates three questions: what to produce, how to
produce it and for whom?

Recap: What is meant the ‘economic problem’


…………………………………………………………………………………………………………
…………………………………………………………………………………………………………
…………………………………………………………………………………………………………
…………………………………………………………………………………………………………

The existence of the economic problem means that there are 3 fundamental questions that all
economic systems have to answer:

1. What to produce? (Which goods and service to produce)


2. How to produce? (Which factors of production to use to produce each good or service)
3. For whom to produce? (Who gets to consume the goods and services produced)

Complete the table below, ticking the boxes to show which question the statements relate to.

What do How to For whom to


produce? produce? produce?

A restaurant changes its menu to produce


Mexican food rather than Italian food.

A factory decides to make greater use of


capital (machinery) and consequently, some
workers lose their jobs.

A government increases unemployment


benefits so unemployed workers are less
likely to be in poverty.

A hospital decides to take some nurses away


from the surgery department and use them
to provide mental health services instead.

A government increases the minimum wage


so that low paid workers get a pay rise.

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2.2 and 2.9 The role of markets in allocating resources & market economic systems

Allocation of resources

Definition - the way resources (factors of production) are allocated to the production of the goods
and services most wanted by customers.

In other words, how are an economy’s factors of production used to answer the 3 questions posed
above. Different economic systems have different ways of answering these questions.

1) In a pure command economy all decisions about production and consumption are made by
the government. This means that there is a large role for the public sector (the part of the
economy that is controlled by the government)
2) In a pure market economy all decisions about production and consumption are made by
consumers and producers based on prices. This means that there is a large role for the
private sector (the part of the economy that is made up of privately owned businesses not
controlled by the government).
3) In a mixed economy both the public sector and the private sector are involved in making
economic decisions.

Which type of economy are the following?

Command Mixed Free market


economy economy economy

Economy A. There is no government


intervention in this economy.

Economy B. There are some public sector


and some private sector businesses.

Economy C: The government decides how


much of each good should be produced.

Economy D: Resources are allocated partly


through prices and partly through
government decisions.

Economy E: All goods and services in this


economy are produced by businesses that
are competing with each other and trying to
make a profit.

Draw a spectrum showing the different economic systems:

2
2.2 and 2.9 The role of markets in allocating resources & market economic systems

Examples of different types of economy

GDP - the total value of goods and services produced in an economy in a year

The higher government spending as a % of GDP, the more the government is involved in the
economic activity of a country.

Country Government spending as a % of GDP in 2014

Cuba 67

France 56

UK 49

Japan 42

USA 42

Australia 35

Vietnam 31

South Korea 30

Hong Kong 19

Singapore 17

Source: Index of economic freedom

Identify an economy that is closer to being a pure market economy.

…………………………………………………………………………………………………………..

Identify an economy that is closer to being a command economy.

…………………………………………………………………………………………………………..

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2.2 and 2.9 The role of markets in allocating resources & market economic systems

Complete the tables below to understand how the different economic systems answer the three
fundamental questions that arise from the economic problem.

Free market economy Command economy

1) What to
produce

2) How to
produce?

3) For whom
to produce?

Use the following points to complete the table below on the advantages and disadvantages of free
market economies. Add a couple of sentences explanation to each one.

Increased consumer choice (AKA consumer sovereignty), competition leads to efficiency, some goods
won’t be provided due to market failure (more on this later), lack of concern for the environment,
incentive to work, income and wealth inequality

Advantages of free market economies Disadvantages of free market economies

4
2.2 and 2.9 The role of markets in allocating resources & market economic systems

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