1.1.6 Free market economies, mixed economy and command economy Flashcards
What type of economy is the UK?
A mixed economy since some decisions, such as healthcare and education, are made by the government whilst other decisions, such as businesses are made by the markets.
What is a command economy?
An economy in which resources are allocated by the government.
- Sometimes known as a planned economy.
What is a free market economy?
An economy in which resources are allocated by the free market.
Examples of command economies
- Cuba
- Laos
- Vietnam
- China
- North Korea
Examples of free market economies
- USA
- Singapore
Examples of mixed economies
- UK
- France
Advantages of free market economies
- Efficiency
- Entrepreneurship
- Choice
- Competition
Disadvantages of free market economies
- Inequality
- Non-profitable goods would not be made
- Monopoloies
- Lack of welfare state
- Volatile economy
Advantages of command economies
- Maximised welfare
- Low unemployment
- Prevention of monopolies
- Improved equality
- Provision of social goods
Disadvantages of command economies
- Poor decision-making
- Restricted choice
- Lack of risk-taking and efficiency
- Possible corruption
What might happen to public services in a free market economy?
The role of a private company is to make money. Public services are not profitable so in a completely free market economy, private companies would not provide unprofitable services or goods.
What are markets?
Markets are a way of allocating resources.
- Each buyer or seller in a market chooses to exchange something they have for something they’d prefer to have instead.
- For example, someone’s labour (their work) is a resource. If they have a job, they exchange their labour for a salary.
What are mixed economies?
An economy where resources are allocated by the government and the market.
- In a mixed economy, the government is known as the public sector and businesses that are privately owned make up the private sector.
Market failure
Where the allocation of resources by the free markets result in undesirable outcomes – e.g. traffic congestion is seen as a market failure.
What could governments do to address market failure?
Governments often intervene when there is market failure. Examples of ways they could do that:
- Incentive act by changing the law or offering tax breaks, influencing people’s behaviour.
- Governments can also intervene by providing goods or services.