Paper 3 · Economic Systems
A country that moves from a command economy to a market economy can expect efficiency to rise because
Aevery firm in the economy is guaranteed the profit that it earned in the previous year
Bprices are held at the level the planning authority had already fixed for them
Cthe state continues to set an output target for each of the surviving firms
Dloss-making producers can no longer survive, since nothing shields them from rivals
Explanation: In a command economy a loss-making enterprise is kept open by the state, so waste persists. Under the market, a firm that produces at higher cost than its rivals is undercut and closes, which drives productive efficiency, while profit and loss move resources into the goods consumers actually want, which is allocative efficiency.
Derived from ZIMSEC Economics 6073/3 Paper 3, June 2019, Q1