1.1.6: Free market, mixed and command Flashcards
1
Q
What is a free market economy?
A
- An economy in which companies compete and people, buyers and sellers make their own economics decisions with only a limited role for the government
- Where supply and demand regulate production and labour as opposed to government intervention
2
Q
Examples of countries that are considered ‘Free Market Economies’
A
- Hong Kong
- Singapore
- New Zealand
- Malaysia
- Switzerland
3
Q
What is a command economy?
A
- An economy where the government regulates the economy completely; the control of the production and distribution of goods and services
4
Q
Examples of Command Economies
A
- North Korea (1948 to present day)
- The Soviet Union (1922 to 1991)
- Cuba under Fidel Castro
5
Q
What is a mixed economy?
A
- an economic system combining private and public enterprise
- a market system in which free markets coexist with government intervention
6
Q
The theorists of each economy
A
- Free Market: Friedrich Hayek
- Mixed Economies: Adam Smith
- Command Economies: Karl Marx
7
Q
Beliefs of Hayek
A
- free markets with no government intervention provided the most efficient allocation of resources
- government intervention is a threat to efficiency and econ growth
- he identified information gaps between what the economies actually required and what the central planners in command economies were saying it required
- these gaps les to shortages/ surpluses of resources in command economies
8
Q
Beliefs of Adam Smith
A
- recognised that there was a role for governments to ensure efficiency in the distribution of resources
- he also believed economies function best when private individuals work in their own self interest
9
Q
Beliefs of Karl Marx
A
- believed that free markets lead to capitalism and Capitalists would exploit their workers, creating inequality and separate classes in society
- believed that the role of the State is to share production and ownership with all of the workers in society
10
Q
What are the main characteristics of a free market economy?
A
- Private Property
- Supply x Demand= Price
- Driven by self interest
11
Q
What are the main characteristics of a mixed economy?
A
- Federal Government safeguards people and markets
- Government has a large role in the military, international trade and transportation
12
Q
What are the main characteristics of a command economy?
A
- Federal Governments can safeguard people and markets
- Governments can manage social welfare programs
- Governments may own some industries
13
Q
Advantages of a Free Market System
A
- Greater variety of goods and services
- Profit incentive motivates people to work or develop entrepreneurial ideas
- Competition leads to better quality goods
- Freedom of choice in production and consumption
- More efficient use of scarce resources
14
Q
Disadvantages of a free market economy
A
- Inequality, as there will be a gap between the rich and the poor
- Workers get exploited
- Monopolies and control increases as firms increase market power though mergers and acquisitions; leads to exploitation of consumers and supply chains
15
Q
Advantages of a Command Economy
A
- There is less social inequality, as workers get the same wage
- Less unemployment
- The government owns monopoly businesses so consumer exploitation through high prices can be avoided
- Optimum amount of merit goods (eg health care and education)
16
Q
Disadvantages of a Command Economy
A
- Less variety of goods and services
-Poorer quality of goods and services - Inefficient allocations of resources
- No freedom of choice in production and consumption
- Many shortages and surplus as the government can’ plan for demand for the whole country in all areas
- Access to higher living standard is limited for the rest of the country
- Receiving the same wage disincentives people from gaining difficult skills
- A lack of competition means that there is less innovation and product development
17
Q
What is the role of the State in a mixed economy?
A
- Government intervention includes taxation
- This is to raise revenue, so that the revenue can be spent to provide essential goods/ services and to redistribute income
- Government spending is also focused on infrastructure, merit goods ( e.g healthcare) and public goods ( national defense)
18
Q
What are some of the types of tax intervention?
A
- personal income tax
- corporation tax
- value added tax
- tariff on imports-
- inheritance tax etc.
