1B - Economic Systems Flashcards
What are the three main types of economic systems?
- Mixed Economies
- Free Market Economies
- Planned Economies
What are the five characteristics of a Free Market Economy?
- Private Ownership: Resources and businesses are owned by individuals, not the state. Workers choose their jobs, and firms compete for labour and customers.
2.Profit Motive: Firms produce goods and services to make profits, driving efficiency and innovation.
3.Price Mechanism: Prices are determined by supply and demand, and individual choices shape the economy.
4.Competition: Competition encourages innovation and prevents monopolies, but can lead to unequal wealth distribution.
5.Role of Money: Money and trust in financial markets are essential for smooth economic transactions.
Explain the price mechanism and profit motive?
- Price Mechanism: refers to how supply and demand interact to determine prices in a free market. If demand for a product rises, prices go up, signaling firms to produce more of that good. Conversely, when demand falls, prices drop, reducing production.
- Profit Motive: the driving force in capitalism, where businesses aim to maximise profits by minimising costs and selling products that consumers want at the highest possible price.
A dynamic and enterprising economy works best with a combination of price mechanism, price motive and competition.
How would a free market effect the insurance industry?
There would be minimal goverment intervention and a profit motive therefore the market would be competitive and driven by companies seeking profit which would encourage efficiency and innovation.
Prices would be set based on actual risk and market demand improving customer choice.
Less over-regulation would improve competition but may lead to inefficiencies which could raise costs for consumers which reducing the quaility.
Ultimately it would be positive but there could be some set backs.
What are the three characteristics of a Planned Economy?
- Government Ownership: All businesses and property are owned and controlled by the government, with no private ownership.
- Centralised Planning: A government planning body decides what goods and services will be produced, how much, and how resources like labour will be allocated. Political and strategic priorities often outweigh consumer demand.
- **Price Control: **Prices are set by the government, not market forces. This often results in shortages because low prices don’t reflect true supply and demand.All businesses and property are owned and controlled by the government, with no private ownership.
What is centrally-planned and market economies?
also known as
- Centrally-Planned is also known as planned economies or command economies - eg government controlled
- Market Econnomies is also known as Free-Market economies based on supply and remand and the government role is limited
What is a mixed economy?
A system combining elements of both free market and planned economies, with both private and public sectors coexisting.
What is a capitalist mixed economy and a socialist mixed economy?
- Capitalist mixed economy- mixed economy that is more weighted towards a free market
- Socialist mixed economy - mixed economy that is more weighted towards a planned market
How does the government intervene in a mixed economy?
The government intervenes to correct market failures, regulate industries, and provide public goods and services.
In a free market economy, how is competition beneficial?
It encourages innovation, quality improvement, and lower prices.
What is a planned economy?
A system where the government owns all resources and centrally plans economic activities, determining what, how, and for whom to produce.
What is the focus of a planned economy compared to a free market economy?
The focus is on social welfare and equitable distribution of resources rather than profit.
Give an example of a mixed economy.
The UK, USA, and many EU countries, where free market principles exist alongside government intervention.
What are public goods in the context of a mixed economy?
Goods provided by the government that benefit all citizens, such as defense and public infrastructure, which are often underprovided by the private sector.
