1.3.1 Pure Economies Flashcards
3 pure economies
Traditional
Command
Market
All Economies answer the following three key questions:
What should we produce?
How will we produce it?
For whom? (and who gets how much)
Traditional Economy
Tradition dictates how we answer the three key questions of What, How and For Whom.
Discourages growth
No incentive to change
Relies on history and tradition
(think farming village with no currency)
Command Economy
A central person or group dictates the answers to What, How and For Whom.
Central Planning
High level of social goods / Govt services
Limited choice / freedom for economic decision making
Creates equality / fairness
Less income/wealth inequality
In a Pure Market Economy the market forces dictate
What, How and For Whom.
Market forces (aka the interaction between producers and consumers
Consumers and producers together determine WHAT to make
Producers determine the HOW
Money determines FOR WHOM
Private Property -
The right of an individual to own goods, land and machines
Profit
The right to earn a profit
Consumer Sovereignty -
no controls on what can be purchased
Self interest -
pursue your own advantage
Competition
Several producers and consumers for most goods and services
Mixed Economy
All current economies are considered mixed economies
A mixed economy has some elements of all three pure economies
Each economy is unique in the specific mixture of the three economies
Traditional Economy (Role of Government)
Traditional government like rulers and kings like in the past
Traditional Economy
Freedom of Choice
People have the ability to choose from the resources available to produce
Traditional Economy
Ownership of natural resources
Resources are owned by the leaders/government
Traditional Economy
Price Determination
Trading/bartering
Command Economy
Role of Government
The government takes care of every economic decisions
Command Economy
Freedom of Choice
People do not have the choice of choosing their goods, services, and pay.
Command Economy
Price Determination
state/public sector
Command Economy
Ownership of natural resources
The state or public sector
Role of Government
Market Economy
No governmental power.
Freedom of Choice
Market Economy
Consumers and producers have the freedom of choice. Anyone can start a business or close it.
Market Economy
Ownership of natural resources
Everyone has their own business; private.
Price Determination
Market Economy
Private sector.
Mixed Economy
Role of Government
Government creates law and regulates business activities
Mixed Economy
Freedom of Choice
Limited freedom of choice due to government controls
Mixed Economy
Ownership of natural resources
Public & private sectors.
Mixed Economy
Price Determination
Public & private sectors.
