Day: November 5, 2017

In principle, which of the following is an advantage of a planned economy?

Select ONE answer:

1. The lack of market signals
2. Decisions are taken on the basis of social costs and benefits
3. Production is characterised by decreasing returns to scale
4. The government always balances the budget
5. The pattern of production reflects the preferences of consumers

Give the advantages and disadvantages of a mixed economy?

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This is multiple choice question is suitable for Economics KS5 classes.

The answer is 2 – A planned economy has been shown to have considerable weaknesses. As this has become clear many countries have moved away from this system to a more market orientated one. But here the question asks for what, in principle, might be an advantage and by implication a disadvantage of a market system. 5 is an advantage of a market system. Now look at 4 – Market systems certainly do not guarantee this but neither does a planned system. Now look again at 3 – Different industries rather than different systems are characterised by decreasing returns to scale. So perhaps 2 will give us the right answer. Yes, private producers work on the basis of maximising private (profit maximising) benefits and tend to ignore external benefits. It takes a government to internalise these external benefits by, for example, imposing indirect taxes. A planned economy can, in principle, take these into account when planning output levels.

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