Exercises: Economic systems

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

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.

Mexico 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.

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.

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

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

Two fictitious countries present the following data: Rivia — income per capita of $\$640\,000$, high youth unemployment, and private healthcare; Talia — income per capita of $\$520\,000$, low unemployment, and universal public services.

1. a) What does each piece of data tell you about the economic system of each country?
2. b) Argue in which one you would prefer to live as a student and as an older worker, and what criteria you use in each case.

After a major drought, the government of a country limits irrigation and sets a price cap on bottled water.

1. a) Does this imply abandoning the market economy? Reason your answer.
2. b) Evaluate the measure in terms of efficiency and equity.