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Frequently Asked Questions - types of economic system

FAQs - types of economic system

Explain how the market system attempts to solve the economic problem. [6 marks]

Possible explanation could include:

goods and services are freely exchanged through a market without the need for government intervention.
an equilibrium price and quantity will be established in the market through the interaction of the buyers and sellers.
This will determine the allocation of the scarce resources.
Price mechanism signals preferences.
Profits encourage switching/reallocation of resources and thus an optimum level of efficiency is achieved.

Broadly speaking, an explanation of how market system works on its own through the dynamics of demand and supply in the market.

TAGS: market economy, types of economic system