1.2 The allocation of resources Flashcards
What is a Market Economy?
No state intervention in the market economy.
What is a Mixed Economy?
Market operates freely with some government intervention.
What is a Planned Economy?
No free markets - Resources are allocated by the Goverment.
Key advantage to a Market Economy?
Market forces are free to determine the prices of goods and services, Leads to a more efficient allocation of resources. Consumers also have a far greater choice of goods on offer, and there is more of an incentive for firms to produce efficiently, since their profits depend on it.
Key Disadvantage to a Market Economy?
It creates inequality, rich become richer and the poorer become poorer.
Why are Incentives important in economics?
Help the economy to produce efficiently.
What is Productive Efficiency?
Occurs when an optimal level of output is produced using all resources that are available in the economy.
What is Allocative Efficiency?
Distributing and assigning the resources a firm has available to it in the most effective way to satisfy the demand of the consumers.
What’s it called when the economy is both allocative and productive efficient?
Economically Efficient.
What idea is the Market Economy associated with?
“Laissez-Faire” (let people do as they please)
What are most economoys?
Mixed Economy’s.
Examples of a planned economy?
Soviet Union and Old China.
