CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS

Language worksheet 4.1 answers

Different economic systems
1 Market economy Planned economy Mixed economy

Decisions made by interactions between Planning mechanism Price mechanism operates in

households and firms allocated resources the private sector and planning
mechanism in the public sector

Prices and profits act as a signal as to where State planners set targets
resources should be allocated for output

2 Market economy Planned economy Mixed economy

USA Venezuela UK
Hong Kong Cuba Greece
New Zealand North Korea

3 Market economy Planned economy

Advantages: Advantages:
Firms produce what consumers want Essential goods will be provided for free or at least
heavily subsidised

Incentive to work hard and earn higher wages No unemployment

Opportunity to make (and keep) profit Elimination of waste resulting from competition
between firms

High rates of economic growth Greater income equality leads to more social cohesion

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Cambridge International AS & A Level Economics – Vlachonikolis, Collins & Croft © Cambridge University Press 2021
 CAMBRIDGE INTERNATIONAL AS & A LEVEL ECONOMICS

Market economy Planned economy

Disadvantages: Disadvantages:
Unequal distribution of income leads to lower Goods are likely to be rationed
standard of living

Firms will try to lower wages Workers likely to be allocated to a particular industry

Greater production leads to more pollution Low rates of economic growth

Can lead to monopoly and abuse of market power Lack of profit motive meaning that firms are inefficient and do
not innovate

4 Learners’ own answers.

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Cambridge International AS & A Level Economics – Vlachonikolis, Collins & Croft © Cambridge University Press 2021