Question

Opening:
Highlight or underline the correct answers below.
SS6E10.a – Comparing Economic Systems
1. Which economic system answers the questions what, how, and for whom based on customs, traditions, and rituals?
o A) Command
o B) Market
o C) Traditional
o D) Mixed
2. In a command economy, who decides what goods and services will be produced?
o A) Consumers
o B) Government
o C) Private businesses
o D) Market forces
3. Which economic system allows private individuals to own property and make decisions based on supply and demand?
o A) Tradition-based
o B) Command
o C) Market
o D) Mixed
4. A country with a mixed economy located closer to a pure market economy likely has:
• A) Low government intervention
• B) High government intervention
• C) No private ownership
• D) Strict price controls
5. Which economic system features significant government control and planning?
o A) Market
o B) Command
o C) Traditional
o D) Mixed
6. In which economic system do supply and demand primarily determine prices?
o A) Command
o B) Traditional
o C) Market
o D) Mixed
7.
o Which system combines elements of both market and command economies?
o A) Traditional
o B) Mixed
o C) Market
o D) Command
________________________________________
Short-Answer / Open-Ended Questions
1. Explain how a traditional economy determines
o What to produce, how to produce it, and for whom.
[Links to an external site.
2. Describe how a command economy answers the three basic economic questions.
3. Describe how a market economy answers the three basic economic questions.
4. Define a mixed economy.
o How does it sit on a continuum between pure market and pure command systems? Provide an example of a country and explain where it lies on the continuum.

o 5. Links to an external site.
o Compare and contrast:
o A pure market economy
o A pure command economy
o A mixed economy

Answer 1

Multiple choice — correct answers:
1. C) Traditional
2. B) Government
3. C) Market
4. A) Low government intervention
5. B) Command
6. C) Market
7. B) Mixed

Short-answer / open-ended

1) Traditional economy — how it answers the three questions
- What to produce: determined by customs, traditions, and past practices (goods needed for subsistence, traditional crops, crafts).
- How to produce: using established methods passed down through generations (family labor, simple tools, low specialization).
- For whom: distribution follows social roles, family/tribal ties, or community rules (goods shared within the group or exchanged by barter).

2) Command economy — how it answers the three questions
- What to produce: a central government or planning authority sets production targets and decides which goods/services are produced.
- How to produce: the government allocates resources, controls factories and farms, and prescribes production methods and inputs.
- For whom: the government controls distribution (rationing, assigned jobs, set prices); citizens receive goods according to state plans and priorities.

3) Market economy — how it answers the three questions
- What to produce: consumer preferences and willingness to pay (demand) signal producers what to make.
- How to produce: firms choose production methods that minimize cost and maximize profit, guided by competition and technological choices.
- For whom: distribution is based on income and purchasing power (wages, profits); prices coordinate allocation through supply and demand.

4) Define a mixed economy; continuum placement and example
- Definition: A mixed economy combines market mechanisms (private ownership, supply-and-demand pricing) with government intervention (regulation, public services, social safety nets).
- Continuum: A mixed economy lies between a pure market (minimal state role) and a pure command economy (state control of most resources). The closer it is to the market end, the less government intervention; the closer to the command end, the more planning and state ownership.
- Example: United States — lies nearer the pure market end but is mixed because the government regulates markets, provides public goods (defense, infrastructure), and runs programs (Social Security, Medicare), while most production is private.

5) Compare and contrast: pure market, pure command, mixed
- Ownership of resources:
- Pure market: mostly private ownership.
- Pure command: state ownership of most resources.
- Mixed: combination of private and public ownership.
- Decision-makers:
- Pure market: consumers and firms (market forces).
- Pure command: central planners/government.
- Mixed: both markets and government play roles.
- Price mechanism:
- Pure market: prices determined by supply and demand.
- Pure command: prices set by government.
- Mixed: market prices dominate but may be regulated or controlled in sectors.
- Advantages:
- Pure market: efficient allocation, innovation, consumer choice.
- Pure command: ability to mobilize resources for large projects, pursue equality goals.
- Mixed: balances efficiency with social protections and public goods.
- Disadvantages:
- Pure market: can produce inequality, market failures, underprovision of public goods.
- Pure command: inefficient allocation, lack of incentives, limited consumer choice.
- Mixed: potential government failure, regulatory complexity, and trade-offs between efficiency and equity.
- Examples:
- Pure market: theoretical ideal (no country fully pure).
- Pure command: historical examples — Soviet Union, North Korea (closer examples).
- Mixed: most modern economies — United States, Germany, Sweden (varying degrees along the continuum).