1.1.6 Free markets, mixed and command economies Flashcards
What is a free market economy
-market forces of supply and demand allocate resources using price mechanism
-economic decisions are made by individuals and firms without gov intervention
What are the advantages of a free market system
-efficiency as firms try to lower costs and provide what consumers value most
-personal freedom
-absence of gov bureaucracy
What are the disadvantages of a free market?
-inequality benefits the wealthy and provides lack of social security
-monopolies exploit customers
-externatities lead to market failure
-over and under consumption
-absence of public goods
What is a mixed economy
market forces with some state intervention, most economies
What is a command economy
-gov undertakes coordination role, directing allocation of resources
-complicated and costly to implement
-missallocation without price system
-no incentives to work hard
-corruption of gov officials
-loss of personal liberty
What were Adam Smith’s beliefs
-Free market economist
-The invisible hand concept, economies work best and fairly when individuals pursue self interest
-gov intervention poses a threat to growth
-‘its not from the butcher… that we expect our dinner but from their regard to their own interest’
What were Friedrick Hayek’s beliefs
-Free market economist
-gov intervention distorts markets and creates more problems than it solves (great depression caused by low interest rates set by us federal reserve)
-its impossible for gov to proccess info to distribute resources efficiently
-‘the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design’
What were Karl Marx’s beliefs
-Command economist
-Capitalism is doomed to failure because of the need for the capitalists to exploit workers for profit
-‘let the ruling class tremble at a communist revolution the proletarians have nothing to lose but their chains’
