Level L Economics Periodic

Revision T1 Wk7

1. Give some of the advantages and disadvantages of market economy.

Answer:
Advantages:
 Private investments and labor productivity are high in parallel to high profits and
incomes.
 Consumers freely choose which products to buy from a wide variety of goods and
services.

Disadvantages:
 Demerit goods are overproduced and overconsumed.
 The benefits and costs to society are ignored.
 Resources are over-utilized by companies producing the same good
 Private firms tend to produce in-demand products rather than necessary ones

2. The "price mechanism" is best defined the manner in which __________

interact based on _________.

Answer:
producers and consumers, price signals

3. How are resources allocated in a market economy?

Answer:
 Private individuals who own resources.
 Producers who decide on what to produce based on what consumers want
 The price mechanism

4. A __________ economy is an economic system that involves minimum

government intervention and where economic decisions are determined
by the price mechanism.

Answer:
market

Date 06-10-20 | Level L | 1

5. In a market economy, ____________ influence production through their
preferences while ___________ determine how to produce.

Answer:
consumers, producers

6. What are the benefits of government assistance within a mixed economy?

Answer:
 Public and merit goods are financed through taxes and provided by the
government.
 The government sets laws that prevent large businesses from exploiting
consumers by selling them low quality products at high prices
 Vulnerable groups and unemployed individuals are supported by the government
through social benefits

7. Describe the main features of a mixed economy.

Answer:
 There are two sectors in a mixed economy: private and public
 Market forces play a role in some industries

8. Describe the different economic sectors.

Answer:
 Primary sector: Includes industries that are key suppliers of raw materials used in
production processes. Examples are salt extraction and gold mining industries.
 Secondary sector: Includes firms that use raw materials and process them into
finished goods. Examples are furniture making and boat manufacturing industries.
 Tertiary sector: Includes businesses that provide services such as hotels and
restaurants.
 Quaternary sector: Includes businesses that collect, transmit, and organize
information such as consultancy agencies.

Date 06-10-20 | Level L | 2

9. Consider the following table:

Employme Employme
nt in nt in
millions in millions in
2015 2016
Farmers 10 8
Mine 4 7
workers
Manufactur 20 18
ers
Retailers 10 10
Educators 5 5

It can be concluded about the distribution of employment between 2015 and 2016 that
it increased in the _________________________, it remained the same in the
_________________________ , and it decreased in the
_________________________ .

Answer:
primary, tertiary, secondary

10. Give examples of the different sectors of production.

Answer:
 Primary: farming, fishing, mining
 Secondary: computer manufacturing
 Tertiary: retailing, consulting, transporting

11. Differentiate between barter and money exchange.

Answer:
Barter:
 Directly exchanges goods or services for other goods or services without an
exchange medium
 Is the most common form of exchange in natural (primitive) economies
 Is based on the double coincidence of wants

Money Exchange:
 Involves a buyer, a seller, a product, and a medium of exchange
 Is the most common form of exchange in modern societies

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 Takes place when the demander pays the supplier a specific amount of money in
return for the desired product

12. Define the term "demand".

Answer:
The term "demand" can best be defined as the quantity that a buyer is willing
and able to purchase at a given price in a given period.

13. Explain why the demand curve slopes downward.

Answer:
It slopes downwards due to the inverse relationship between price and quantity
demanded.

14. What is the reason for demand extensions and contractions?

Answer:
The change in the price of the good

15. What is the difference between barter and money exchange?

Answer:
Barter is the swapping of goods for other goods while money exchange is where any
transaction involves the use of money.

16. What will happen to demand for normal goods when income decreases?

Answer:
When income decreases, demand for normal goods will decrease and vice versa

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17. Which of the following does not represent a graphical presentation of
demand curve?

Answer:
2

18. A researcher is studying the effect of a change in income tax on demand,

ceteris paribus. In this case, which of the following should be held constant?

Answer:
All other factors should remain constant such as:
 Price of other goods
 Population size
 Product quality

Date 06-10-20 | Level L | 5

19. How is extension and contraction of demand represented on a graph?

Answer:
Extension: movement downward along the demand curve
Contraction: movement upward along the demand curve

20. What is the effect of a change in the determinants of demand on the curve
itself?

Answer:
It causes a shift in the demand curve leftwards or rightwards.
(Price change causes a movement along the demand curve)

Date 06-10-20 | Level L | 6