1.4 Resource allocation in different economic systems Flashcards
Define the term “Specialization”
The term specialization refers to the concentration of production on a narrow range of goods and services.
List 5 Advantages of specialization.
- Higher output
- Wider range of goods and services
- Greater allocative efficiency
- Higher productivity through better use of workers
- Quality improvements
List 4 Disadvantages of specialization.
- Finite resources
- Changes in fashion
- De-industrialization
- National interdependence
Define the term “Division of labor”
The term division of labor refers to breaking down the production process into separate tasks upon specialization.
List 3 Advantages of division of labor.
- Workers will be highly productive. This will lead to higher wages, more time savings, lower costs of production, and lower prices.
- Specialist capital for workers.
- Lower prices, higher quality / choice for consumers
List 4 Disadvantages of division of labor.
- Workers will be demotivated
- Higher worker turnover
- Risk of long term unemployment
- Highly standardized goods/services
Define the term “Economic Systems”
The term economic systems refer to the structure that guides production, allocation of economic inputs, distribution of economic outputs, and the consumption of goods and services in an economy.
What are the types of market systems?
- Planned/Command Economy
- Mixed Economy
- Free-Market Economy
Define the term “Command Economy”
An economy where all economic resources are owned, planned, and controlled by the government.
Define the term “Mixed Economy”
An economy where the economic resources are owned and controlled by both private and public sector.
Define the term “Free-Market Economy”
An economy where the economic resources are owned and controlled largely by the private sector with very little intervention by the government.
List 3 Advantages of a Command Economy.
- There is no competition between firms thus resulting in less waste.
- Goods and services are produced in the interest of society rather than for seeking profits.
- The government ensures that everybody is employed in order to keep them occupied, although doing so may not be profitable
- The command economic system has a fairer distribution of income than other economic systems therefore there is a smaller gap between the rich and poor.
- It ensures that some resources are devoted to the community, public, and essential goods.
- Guarantees equal living standards for everyone, therefore there is less crime and poverty.
List 3 Disadvantages of a Command Economy.
- No incentives for businesses to produce better products or engage in entrepreneurship and are generally inefficient due to the lack of profit motive.
- Production of goods is decided by the government thus there is no consumer choice.
- Less flexible than market economies and react slower to changes in consumer demand.
- The government determines what, how, and for whom goods and services are produced.
List 3 Advantages of a Free-Market Economy.
- Market economies respond quickly to consumer demand.
- Factors of production which are profitable will only be employed.
- Inefficient industries are eliminated.
- There is a wide variety of goods and services in the market.
- New and better methods of production are encouraged thus leading to lower cost of goods and services.
List 3 Disadvantages of a Free-Market Economy.
- Public goods may not be provided for in a market economy, thus the government will have to interfere to provide these types of goods.
- Market economies consider consumption of harmful goods.
- Prices are determined by the demand and supply of goods and therefore social cost may not be considered leading to higher unemployment.
- Huge divide between the wealthy and poor.
