In a centrally planned economy, which of the following would be most likely to explain the failure of particular industries to achieve their output targets?
Select ONE answer:
- The lack of market signals
- A change in consumer tastes
- An increase in the savings ratio
- A deficiency in aggregate effective demand
- Miscalculation of the interdependence between industries
Give the advantages and disadvantages of a free market economy?
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This is multiple choice question is suitable for Economics KS5 classes.
The answer is 5 – You spend much time developing a basic understanding of how a market economy functions but it can help to look at how a centrally planned economy might work (or not) so it is good to know the advantages and disadvantages of such a system. Think about the advantages of a market system. Industries cope with a change in taste via changes in market prices, with changes in the savings ratio by changes in interest rates and with changes in aggregate demand by raising and lowering output and prices (see answers 2, 3 and 4). Now look again at 5. This is a key problem in a planned economy, where output plans are made by the state. In a market economy, governments don’t set output targets and problems of interdependence between industries are dealt with via price adjustments of intermediate outputs. So the answer we arrive at is 5.
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