How traditional, command, market and mixed economies decide what to make

Grade 12 Social Studies Worksheet

Circle the best answer.

1. Read this first

   Use this

   Cards A to C on two policies in Port Wren (example figures, made up for practice). Card A, "Rents in Port Wren". Table, columns Monthly rent | Apartments wanted | Apartments offered within a year | Apartments offered within five years: $1,400 | 12,000 | 9,000 | 7,000; $1,600 | 11,000 | 9,500 | 8,500; $1,800 | 10,000 | 10,000 | 10,000. The market rent is $1,800. The council caps rents at $1,400. Card B, "A landlord's choice under the cap". A repair costing $120 a month would let an apartment rent for $200 a month more in an open market. Under the cap the rent stays $1,400 either way, and the apartment still fills. Card C, "A school voucher". Each family may spend a $9,000 voucher at any school that accepts it. Public schools receive $11,000 a student from taxes and lose it for each student who leaves. About 1,000 Port Wren students already attend private schools, paying their own tuition.

2. 1.

   Milo reads card A in the cap's first year. What signal stops working in Port Wren, and who bears the cost?

   • No signal is lost: the 9,000 apartments still fill, so the market still clears at $1,400
   • The price signal: 12,000 households now rent at $1,400, each paying $400 less than before
   • A rising rent can no longer ration or draw units: 3,000 households find none, while 9,000 pay $400 less
   • The cap signals owners to offer more, since tenants now have more money left to spend on rent

3. Use this

   Cards A to C on efficiency and equity (card A is real data; card B is a summary in our words; card C is made up for practice). Card A, "Output and inequality in seven countries, 2022". Who made it: the World Bank, World Development Indicators, read November 14, 2026. Table, columns Country | GDP per person, PPP, 2021 international dollars | Gini index: United States | 72,829 | 41.7; Denmark | 69,090 | 29.3; Germany | 63,778 | 33.7; France | 53,674 | 31.2; Slovenia | 47,059 | 24.3; Poland | 43,405 | 28.9; Chile | 29,561 | 43.2. Note in our words: GDP per person is output per resident, adjusted for price levels; the Gini index runs from 0 (everyone has the same income) to 100 (one person has it all) and comes from household surveys that differ somewhat by country. Card B, "Arthur Okun, Equality and Efficiency: The Big Tradeoff (1975)". Summary in our words, not a quotation: Okun pictured money taxed from richer families and carried to poorer ones in a leaky bucket. Some leaks out on the way: the cost of running the program, and the work, saving and investing that taxes and benefits discourage. How much leakage to accept is a value judgment about equality, not a fact that data can settle. Card C, "A plan for Fenmoor (made up)". Fenmoor would tax 1,000 higher-income households $1,000 each. Of the $1,000,000, $700,000 would reach 2,000 lower-income households, $350 each; the other $300,000 leaks to running costs and to work that the taxes discourage.

4. 2.

   Ari sets Denmark beside the United States on card A, using card B. Which statement best captures the trade-off the two cards show?

   • The United States is more efficient, since its output per person is the highest of all seven countries on card A
   • Denmark's equality makes it richer, since the more equal countries on card A have higher output
   • Denmark has the better system, since it is nearly as rich as the United States and far more equal
   • If its programs cause Denmark's 5 percent lower output, that is the leak paid for a Gini 12 points lower

5. Use this

   Cards A to C on two bus makers in Tallis (card A is a summary in our words; cards B and C are made up for practice). Card A, "János Kornai, 'The Soft Budget Constraint' (Kyklos, 1986)". Summary in our words, not a quotation: A firm faces a hard budget constraint when losses can end it. It faces a soft one when it expects the state to cover its losses with grants, cheap loans or tax relief. Kornai argued that a soft constraint weakens a manager's reasons to cut costs, to fit output to what buyers want and to take care with new investment. Card B, "Two bus makers over five years". Table, columns Firm | Owner | Losses covered by the state | Buses made a year | Cost per bus | Unsold buses at year's end: North Works | the state | every year | 1,200 | $310,000 | 180; Ridge Motors | private owners | never | 900 | $260,000 | 20. Card C, "A claim". A council member says: "North Works makes more buses, so state ownership puts more of our resources to work for the public."

6. 3.

   Bo combines cards A and B. Which explanation of the gap between the two bus makers do the cards best support?

   • North Works makes 300 more buses than Ridge, so its larger size explains why it leaves more of them unsold
   • Ridge Motors costs less because private owners pay lower wages, as card A says private firms do
   • Covered losses soften North Works' budget, which fits its higher cost per bus and 180 unsold buses
   • The cards show that state-owned firms will cost more to run than private firms do, wherever they are

7. Use this

   Cards A to C on two policies in Port Wren (example figures, made up for practice). Card A, "Rents in Port Wren". Table, columns Monthly rent | Apartments wanted | Apartments offered within a year | Apartments offered within five years: $1,400 | 12,000 | 9,000 | 7,000; $1,600 | 11,000 | 9,500 | 8,500; $1,800 | 10,000 | 10,000 | 10,000. The market rent is $1,800. The council caps rents at $1,400. Card B, "A landlord's choice under the cap". A repair costing $120 a month would let an apartment rent for $200 a month more in an open market. Under the cap the rent stays $1,400 either way, and the apartment still fills. Card C, "A school voucher". Each family may spend a $9,000 voucher at any school that accepts it. Public schools receive $11,000 a student from taxes and lose it for each student who leaves. About 1,000 Port Wren students already attend private schools, paying their own tuition.

8. 4.

   Card C's voucher starts. Kira considers a family choosing between a public school and a private one charging $11,000. What changes at the margin, and who bears the cost?

   • Nothing changes for this family, since the $9,000 voucher is worth less than the private school's $11,000
   • The family's extra cost of going private falls from $11,000 to $2,000; the public school loses $11,000
   • Taxpayers save $2,000 on every voucher, including those used by the 1,000 students already in private school
   • The voucher costs taxpayers nothing new, since the money simply follows each student to a school

9. Use this

   Cards A to C on efficiency and equity (card A is real data; card B is a summary in our words; card C is made up for practice). Card A, "Output and inequality in seven countries, 2022". Who made it: the World Bank, World Development Indicators, read November 14, 2026. Table, columns Country | GDP per person, PPP, 2021 international dollars | Gini index: United States | 72,829 | 41.7; Denmark | 69,090 | 29.3; Germany | 63,778 | 33.7; France | 53,674 | 31.2; Slovenia | 47,059 | 24.3; Poland | 43,405 | 28.9; Chile | 29,561 | 43.2. Note in our words: GDP per person is output per resident, adjusted for price levels; the Gini index runs from 0 (everyone has the same income) to 100 (one person has it all) and comes from household surveys that differ somewhat by country. Card B, "Arthur Okun, Equality and Efficiency: The Big Tradeoff (1975)". Summary in our words, not a quotation: Okun pictured money taxed from richer families and carried to poorer ones in a leaky bucket. Some leaks out on the way: the cost of running the program, and the work, saving and investing that taxes and benefits discourage. How much leakage to accept is a value judgment about equality, not a fact that data can settle. Card C, "A plan for Fenmoor (made up)". Fenmoor would tax 1,000 higher-income households $1,000 each. Of the $1,000,000, $700,000 would reach 2,000 lower-income households, $350 each; the other $300,000 leaks to running costs and to work that the taxes discourage.

10. 5.

    A writer argues from card B that any tax-and-transfer program shrinks output, so no country should run one. Luz looks for the strongest objection the cards allow. Which is it?

    • A leak means poorer families get less than richer ones lose; whether that is worth it depends on its size
    • Equality matters more than output, so the size of the leak should not count in the choice
    • Okun's leak is the cost of running the program alone, which is small in most countries
    • Denmark's output per person is above Germany's and France's, so its taxes cannot carry any cost
11. 6.

    A student claims card A proves that equality costs output, because more equal countries are poorer. Noah tests the claim against all seven rows. What is the best verdict?

    • Not shown: the Gini index is a measure of output, so it cannot be compared with GDP per person
    • Not shown: Chile is least equal and poorest, Denmark equal and rich; one year cannot show cause
    • Shown: Slovenia and Poland, the two most equal, are among the three poorest countries on the card
    • Shown: the United States is the richest and among the least equal, so inequality raises output

12. Use this

    Cards A to C on two bus makers in Tallis (card A is a summary in our words; cards B and C are made up for practice). Card A, "János Kornai, 'The Soft Budget Constraint' (Kyklos, 1986)". Summary in our words, not a quotation: A firm faces a hard budget constraint when losses can end it. It faces a soft one when it expects the state to cover its losses with grants, cheap loans or tax relief. Kornai argued that a soft constraint weakens a manager's reasons to cut costs, to fit output to what buyers want and to take care with new investment. Card B, "Two bus makers over five years". Table, columns Firm | Owner | Losses covered by the state | Buses made a year | Cost per bus | Unsold buses at year's end: North Works | the state | every year | 1,200 | $310,000 | 180; Ridge Motors | private owners | never | 900 | $260,000 | 20. Card C, "A claim". A council member says: "North Works makes more buses, so state ownership puts more of our resources to work for the public."

13. 7.

    The state stops covering North Works' losses next year. Using cards A and B, what does Tala predict for the manager's choices?

    • Bus prices fall across Tallis, since Ridge Motors no longer faces state-backed competition
    • Stronger reasons to cut the cost per bus and the unsold stock, since losses can now end the firm
    • Little changes, since the manager is paid a salary either way and does not keep any profit
    • Output rises, since the firm must now make and sell more buses to cover the losses the state used to pay

14. Use this

    Cards A to C on efficiency and equity (card A is real data; card B is a summary in our words; card C is made up for practice). Card A, "Output and inequality in seven countries, 2022". Who made it: the World Bank, World Development Indicators, read November 14, 2026. Table, columns Country | GDP per person, PPP, 2021 international dollars | Gini index: United States | 72,829 | 41.7; Denmark | 69,090 | 29.3; Germany | 63,778 | 33.7; France | 53,674 | 31.2; Slovenia | 47,059 | 24.3; Poland | 43,405 | 28.9; Chile | 29,561 | 43.2. Note in our words: GDP per person is output per resident, adjusted for price levels; the Gini index runs from 0 (everyone has the same income) to 100 (one person has it all) and comes from household surveys that differ somewhat by country. Card B, "Arthur Okun, Equality and Efficiency: The Big Tradeoff (1975)". Summary in our words, not a quotation: Okun pictured money taxed from richer families and carried to poorer ones in a leaky bucket. Some leaks out on the way: the cost of running the program, and the work, saving and investing that taxes and benefits discourage. How much leakage to accept is a value judgment about equality, not a fact that data can settle. Card C, "A plan for Fenmoor (made up)". Fenmoor would tax 1,000 higher-income households $1,000 each. Of the $1,000,000, $700,000 would reach 2,000 lower-income households, $350 each; the other $300,000 leaks to running costs and to work that the taxes discourage.

15. 8.

    Ren applies card B to the made-up plan on card C. Which judgment about Fenmoor's plan do the cards support best?

    • Adopt it: 2,000 households gain $350 each, so the plan helps twice as many people as it taxes
    • Reject it: a plan that loses 30 cents of each dollar taxed wastes more than it achieves for either group of homes
    • It moves $700,000 to poorer homes for $1,000,000 taxed; whether a 30 percent leak is worth it is a value call
    • Adopt it, since card A shows that more equal countries, such as Denmark, are also the richer ones

16. Use this

    Cards A to C on two bus makers in Tallis (card A is a summary in our words; cards B and C are made up for practice). Card A, "János Kornai, 'The Soft Budget Constraint' (Kyklos, 1986)". Summary in our words, not a quotation: A firm faces a hard budget constraint when losses can end it. It faces a soft one when it expects the state to cover its losses with grants, cheap loans or tax relief. Kornai argued that a soft constraint weakens a manager's reasons to cut costs, to fit output to what buyers want and to take care with new investment. Card B, "Two bus makers over five years". Table, columns Firm | Owner | Losses covered by the state | Buses made a year | Cost per bus | Unsold buses at year's end: North Works | the state | every year | 1,200 | $310,000 | 180; Ridge Motors | private owners | never | 900 | $260,000 | 20. Card C, "A claim". A council member says: "North Works makes more buses, so state ownership puts more of our resources to work for the public."

17. 9.

    Zee asks who bears the cost of North Works' covered losses, using cards A and B. Which answer fits best?

    • Taxpayers or lenders to the state, and whoever would have used those funds for something else
    • No one, since the losses go to the state, which owns North Works and so pays itself back
    • Ridge Motors' owners, since card A says the state charges private firms to cover the losses
    • Bus riders, since North Works' cost of $310,000 a bus is passed on to them in higher fares
18. 10.

    Esme looks for the strongest objection to the council member's claim on card C. Which is it?

    • Output counts buses made, not used: 180 sit unsold, and each costs $50,000 more than Ridge's
    • Ridge Motors earns a profit at $260,000 a bus, which shows its buses are the ones the public wants
    • Ridge Motors makes 900 buses, so the two firms together already meet the public's need
    • State ownership wastes resources wherever it is tried, so North Works should be sold at once