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1. What are the What, How and Who questions all economic systems must answer? Describe how government affects the answers to these three questions in market, command and traditional economies.


2. For each of the examples of government-owned organizations listed below, suggest three possible reasons why the government of a country might decide to own and control that industry or service.

Health defence water supply

education public transport electricity supply


3. Identify the type of economy in which each of the following situations could have existed. Next to each situation write C for Command, Mfor Market, T for Traditional, or ME for Mixed Economy.


____ a. Jeff is the manager of a farm equipment factory. Government officials have sent

him plans to produce a certain number of tractors. He doesn’t have to decide what

customers will buy. Rather, his main task is to complete orders on schedule.


____ b. Stanley and Sara made the best bead necklaces in the area. Their family had done

this for years. They had learned to do beadwork at an early age. They sold most of

the necklaces to people who lived in their village.


____ c. Haddock, Inc. Has been in the food production business for years. The company

was started by a family, but is now owned by a number of stockholders. The

railroads and trucklines that the company uses to ship its goods, as well as its

sources of energy, are owned by he government.


____ d. Robert has ordered two dozens albums recorded by a popular rock band and

recently released by a recording studio. After two days in his store, the albums

were sold. He ordered four dozen more albums and raised the price by $1.00.


____ e. In a recent report on buying preferences, Martha found that an increasing number

of consumers were interested in buying desk-top microcomputers. As a top

manager of a high-tech corporation, she is going to recommend to the board of

directors that the corporation add a desk-top computer model to its line of products.


4. Listed below are a number of companies. These are followed by brief details of possible

government actions. Consider in each case whether the government’s action would be

beneficial or otherwise to the company in question.

1. The company is an insurance company specializing in motor insurance. Possible government


a) A relaxation of the drinking and driving laws.

b) The introduction of a lower speed limit on motorways.

с) A substantial reduction in National Health Service expenditure.


2. The company manufactures cigarettes.

a) An extensive television publicity campaign encouraging young people to smoking.

b) A slight increase in the tax on cigarettes.

с) A substantial increase in the tax on beer.


3. The company operates coach tours to the continent.

a) A substantial increase in the tax on petrol.

b) A new law limiting the number of passengers who can be carried in coaches.

с) A lowering of the retirement age to 55.


4. The company is in the business of life assurance.

a) A substantial increase in pay for nurses.

b) A substantial increase in the tax on cigarettes.

c) The abolition of prescription charges for all medicines.



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