1.2 The Nature And Purpose Of Economic Activity Flashcards
Why are goods and services produced?
To satisfy peoples wants and needs
What is a need?
Something people must have and they cannot do without
E.g water and food
What is a want?
Something people would like to have but not essential to survive
(Not necessary for survival but nice to have)
E.g books
Can something be a want and a need?
Yes: food depending on the type of food
-protein and vitamins are needed
-chocolates are wants
Satisfying people’s needs and wants means improving……
Economics welfare
What is welfare
Essentially human happiness
What can improve economic welfare?
Anything that can make a person happier
What are the negatives of short term happiness
Can come at the expense of long term happiness
Economic welfare def?
The economic well-being of an individual, a group within society, or an economy
What is an economic system?
Set of institutions within a community that decides what , how and for whom to produce
How do you define or classify economic systems?
The mechanism(way) through which scarce resources reach the people who eventually consume them .
What are the two mechanisms?
-market mechanism
-command mechanism
What is a market economy?
Where goods are purchased through the price mechanism in a system of markets
What is a command economy?
Gov officials or planners allocate economic resources to firms and other productive enterprises
Most economies are what?
Mixed economies
What does a mixed economy contain?
-large market sector
-large non-market sector
In which the planning mechanism operates
In a pure market economy, what does the price mechanism do?
Allocating scarce resources among competing uses through the markets
What makes up the economy itself ?
The markets
What can cause markets to break up?
-transport costs and lack of info
How can a complete command economy actually exist?
Within a rigid controlled political framework because of the restrictions on individual decision making
How is the command economy similar to the market economy?
The price mechanism alone allocates resources
What is a price mechanism KEY DEF
The system where the forces of supply and demand determines the price of the commodities
When was the UK made into a mixed economy and how did this happen
Post WW2
-1944 Education act extended state provision or education
1948- national health service act did the same for healthcare
What did critics of the UK’s mixed economy argue in 1980?
-blamed it for UK’s deteriorating economic performance in comparison to competitors
-argued that public sector was wealth consuming and not wealth creating
What have been the main policies the UK have used to get closer to being a free market economy?
-privatisation
-marketisation
-deregulation
What are the policies of marketisation, privatisation and deregulation called collectively
Economic liberalisation
Wha this privatisation?
-state-owned assets sold to private owners
What is marketisation and when does it happen?
-when prices are charged for goods that the state previously provided for free
(Occurs after privatisation)
What is deregulation?
Opening up of markets to competition by reducing one or more barriers to entry
(Aims to increase market supply)
How can economic systems be defined?
In terms of who owns the means of production
