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1.1.6. The Free Market versus Mixed Economies 1. Fill in the missing words. (6 marks) The test of any economy is the extent to which it solves the basic _____________________ problem. In a free market, resources are allocated via the ___________________ mechanism. This system of allocation is commonly referred to as _________________________. In the free market, an increase in demand for a good or service will cause the price to _________________, encouraging firms to move more resources into the production of this good or service. In a mixed economy, resources are owned by both households and the ________________. In a mixed economy, governments can intervene in markets through the use of ______________________. Choose the right 6 answers from: rise; communism; price; state; fall; economic; taxation; capitalism 2. Data Analysis (4 marks) A mixed economy is a blend of the free market and the command economy, used extensively by the Soviet bloc economies during the Cold War. Using the chart above, complete the following diagram by inserting the appropriate country, based on the information provided in the chart. 3. Explain 2 characteristics of the free market economy: (4 marks) a) ____________________________________________________________________________________ ______________________________________________________________________________________ b) ____________________________________________________________________________________ ______________________________________________________________________________________ 4. Data Response “The United States is said to have a mixed economy because privately owned businesses and government both play important roles. Indeed, some of the most enduring debates of American economic history focus on the relative roles of the public and private sectors.” Source: www.about.com a. Explain two of the roles held by the public sector (government) in a mixed economy (4 marks) ______________________________________________________________________________________ ______________________________________________________________________________________ ______________________________________________________________________________________ b. One of the key roles held by the government in a mixed economy is to ensure that sufficient competition exists in markets. Explain two potential advantages of competition within a given market (4 marks) ______________________________________________________________________________________ ______________________________________________________________________________________ ______________________________________________________________________________________