Chapter 13 Market economic system
What is an advantage of a market economy?
A An absence of poverty
B Consumer sovereignty
C Firms having considerable market power
D Full employment
B Consumer sovereignty
In which case is market failure occurring?
A Consumers determining what is produced
B Firms producing above the lowest possible cost
C Price falling as a result of a decrease in demand
D Price rising as a result of an increase in costs of production
B Firms producing above the lowest possible cost
What is a cause of market failure?
A Competition between firms
B Consumers lacking information about where the lowest prices can be found
C Differences in pay between skilled and unskilled workers
D Resources being both geographically and occupationally mobile
B Consumers lacking information about where the lowest prices can be found
A government decides to subsidise rail travel. What will be an external benefit of this move?
A A rise in government expenditure
B Increased crowding on trains
C Lower fares for train passengers
D Reduced congestion on roads
D Reduced congestion on roads
Money enables people to save. Which function of money does this describe?
A Medium of exchange
B Store of value
C Unit of account
D Standard for deferred payments
B Store of value
What encourages firms to produce what consumers demand?
A The chance to earn a high profit
B The chance to experience high unit costs of production
C The desire to attract new firms into the industry
D The desire to keep revenue as low as possible
A The chance to earn a high profit
A merit good is one which:
A has an absence of external benefits
B has higher private benefits than consumers realise
C imposes costs on those who are not involved in its production directly
D is both non-excludable and non-rival
B has higher private benefits than consumers realise
The production of which of types of goods, given below, has to be financed by the government?
A Capital
B Consumer
C Merit
D Public
D Public
What is an argument for state intervention in an economy?
A To encourage the consumption of harmful products
B To increase the role of the price mechanism in allocating resources
C To make the distribution of income more uneven
D To prevent private sector firms from overcharging consumers
D To prevent private sector firms from overcharging consumers
What would make an item unsuitable to act as money?
A It is easy to carry
B It is generally acceptable
C It is perishable
D It is recognizable
C It is perishable
What to produce
What: consumer/price mechanism
How to produce
price mechanism, resources are privately owned
For whom to produce
purchasing power
Public good
non-rival
non excludable
needs to be financed by taxation
Central bank
a government-owned bank which provides banking services to the government and commercial banks and operates monetary policy
Price Mechanism
定义1: the way the decisions made by households and firms interact互动 to decide the allocation of resources资源分配.
定义2: the system by which the market forces（市场力量即供给和需求）of demand and supply determine prices.
What will happen when external costs/Negative externalities/spillover cost occur?
Producers lower their private costs by shifting social costs on to the community, too much of product is being produced and the price is so low. Govt. may decide to force producers to include external costs
the determinant of price in mix economy system
Some prices are determined by the market forces of
demand and supply;
some are set by the government
Name 3 market failures and how the government solves it
externalities--tax/subsidy
no enough merit goods--granting subsidies/providing information/passing legislation
over consumption/production of demerit goods--
imposing taxes on such products/providing information/passing legislation.
no public goods--Government finance/provide directly
Role and importance of a central bank
• Acts as a banker to the government.
• Operates as a banker to the commercial banks.
• Acts as a lender of last resort.
• Manages the national debt ：issuing government securities → build up debt
• Holds the country’s reserves of foreign currency and gold.
• Issues bank notes.
• Implements the government’s monetary policy ：keep inflation low and steady：interest rate+ money supply
• Controls the banking system.
• Represents the government
advantages of Economy system
a wide choices of productions/a wide choices of firms/profit motive /competition→ efficiency
Consumer sovereignty/Government freedom
disadvantages of economy system/Market failure
lack of competition/high prices/poor quality/Externalities/No provision of public goods/Market power abuse/Differences in income will increase over time
Describe how price ceilings/ maximum prices solves the market equilibrium
Equilibrium price is too high to afford
↓
government price controls-price ceilling
↓
Some people will now be able to purchase the product at a lower price
↓
an excess of quantity demanded over quantity supplied at the ceiling price.
↓
shortage
Describe how minimum prices/price floors solve the market equilibrium
Equilibrium price is too low
↓
government price controls- price floors
↓
Some products will be over produced at a higher price
↓
an excess of Qs over Qd at the floor price.
↓
surplus
functions of commercial banks
to accept deposits存款业务
to lend 借款业务
to enable customers to make payments
change foreign currency兑换外汇
leave important documents 保管业务
administration of customers’ wills 执行遗嘱
provide advice and help with a number of financial matters, 专业建议completion of tax forms, and the purchase and sale of shares.
Many banks also now sell insurance销售保险
offer a wide variety of savings accounts, with a range of conditions and interest rates. 提供各种储蓄账户
Some offer mortgage loans.按揭贷款