Economic systems

State the three basic questions that every economic system must answer and explain each with an example from your local area.

Think about your neighbourhood or town: name three private businesses and three services run by the State or the town council. What conclusion do you draw about what type of economic system Spain has?

Explain how a market economy differs from a centrally planned economy: who decides what is produced and what role prices play in each system.

The figure shows the spectrum of economic systems, with two imaginary countries, Efed and Zora, located at different positions.

1. a) Which of the two countries is closer to central planning? Justify your answer.
2. b) Position a country where healthcare and education are public but most companies are private on the spectrum, giving your reasoning.

For each system (market, central planning, and mixed economy), state who answers the questions of what to produce, how to produce, and for whom to produce, and give a real or fictitious example to illustrate it.

In a market economy, prices work as signals. If the price of avocados rises sharply, explain what "message" farmers receive and what message consumers receive, and how each group will react.

In the market it is said that "consumers vote with their euros": firms produce what people are willing to buy. Explain what that phrase means and what problem it poses for those who have few euros to "vote" with.

In a planned economy, when a product is scarce, queues form at shops; in a market economy, the price rises.

1. a) Explain what rationing mechanism each system uses.
2. b) Compare what problems each generates and for whom.

Places at the public university are allocated by cut-off grade; places at a private language academy go to whoever pays the enrolment fee.

1. a) What rationing mechanism does each institution use?
2. b) Compare one advantage and one drawback of each mechanism, thinking about efficiency and equal opportunities.

In the fictitious country of Duria, the State sets the price of bread by law below its cost. After a year there are closed bakeries, queues at dawn and a black market for expensive bread.

1. a) Explain, using the concepts from this section, the chain of problems the measure has generated.
2. b) What would the free price have done in that situation, and what alternative could protect poor families without fixing the price?

In the city of Lerna, housing rent is left entirely to the market; in Urma, the city council sets prices and allocates flats via a waiting list.

1. a) Analyse an advantage and a predictable problem of each model.
2. b) Propose an intermediate system and explain why it might work better.

Spain is a mixed economy. Give two examples of areas where the market decides and two where the State intervenes, and explain what justifies public intervention in the latter two.

Two fictitious countries: in Nerka public spending represents $48\ \%$ of GDP and in Suria $28\ \%$.

1. a) Which is closer to the public planning pole? Justify your answer.
2. b) Describe what services you would expect to find in Nerka that might be missing in Suria.
3. c) Qualify the conclusion: does more public spending mean the market decides less? Reason with an example.

A political party proposes in its electoral programme to entirely privatise roads, street lighting, and courts of justice, arguing that "if the market is the most efficient mechanism for producing food and clothing, it will also be for any other public good or service."

1. a) Use the characteristics of public goods (rivalry and excludability) to predict what market failures would emerge if a private company attempted to manage a city's street lighting or national defence for profit. Why would the free market not produce them in sufficient quantities?
2. b) Analyse what would happen if courts of justice operated as private firms charging the parties to issue rulings. Justify why the State must reserve this domain for itself to enable the very functioning of the market.