1.4 Resource allocation in different economic systems Flashcards
What is an economic system?
a complex network of individuals, organisations and institutions
What is the function of an economic system?
To answer the three basic resource allocation questions
What are the three basic economic questions every economy must answer?
What to produce, how to produce, and for whom to produce.
Who are the actors in economic systems?
- Individuals
- Groups
- Governments
What is a market economy?
An economy in which market forces (price mechanism) guide the allocation of resources.
What are the two primary mechanism for resource allocation in a market economy?
- Supply and demand
- Price Mechanism
What is one advantage of a market economy?
Increased efficiency and innovation due to competition.
What is a disadvantage of a market economy?
Higher income inequality
What is the impact of competition in a market economy?
It drives innovation and lowers prices.
What is a mixed economy?
Combines elements of both market and planned economies to allocate resources
In a mixed economy, what is the government’s role?
To regulate and intervene when needed to insure social welfare.
What is one characteristic of a mixed economy?
Co-existence of private and public sectors.
What is a command/planned economy?
An economy in which decisions regarding resource allocation are guided by the state.
In a planned/command economy, who makes the decisions regarding resource allocation?
The government or central authority.
What is a potential benefit of a planned economy?
Ability to quickly mobilise resources for large-scale projects.
