1.1.6 - types of economies

Question 1

command economy economist

Answer 1

Karl Marx

Question 2

free market economy economist

Answer 2

Adam smith

Question 3

mixed economy economist

Answer 3

Friedrich Hayek

Question 4

what’s part of a command economy?

Answer 4

• government intervention
• government allocates all resources, no use of price mechanism
• decisions of what and who to produce goods for is controlled by the government
• standard of living tends to fall

Question 5

Advantages of a command economy

Answer 5

• high levels of output
• reduction in inequality

Question 6

disadvantages to a command economy

Answer 6

• may be shortages of goods
• slow economic growth
• lack of innovation

Question 7

what is part of a mixed economy?

Answer 7

• 2 sectors: private + public sector
• governments only intervene in the provision or protection of public goods - when there is a failure
• price mechanism acts as a communication network

Question 8

Advantages of a mixed economy

Answer 8

• incentives to be efficient (most business + industry can be managed by private firms)
• reduces market failure
• equality

Question 9

disadvantages of mixed economy

Answer 9

• can be difficult to know when governments should intervene
• can be too much inequality
• government failure

Question 10

what is part of a free market economy?

Answer 10

• all resources are allocated by the price mechanism
• economic decisions is made by consumers and producers

Question 11

advantages of a free market economy

Answer 11

• freedom of choice for consumers - forces producers to use resources more efficiently in order to be more competitive
• producers must satisfy consumer needs
• incentives to innovate and improve

Question 12

disadvantages of a free market economy

Answer 12

• vast inequalities of income and wealth
• competition can break down
• risk and certainty - no guarantee of employment or profit