4) Types Of Economy: Ree Market And Mixed

Question 0

What is a command economy

Answer 0

⚫️government decides how to allocate resources

Question 1

What are the three types of economy

Answer 1

⚫️command economy

⚫️mixed economy

⚫️free market

Question 2

What is mixed economies

Answer 2

⚫️some resources allocated by government

➡️some allocated by market forces

Question 3

Whats free market

Answer 3

⚫️free market allocate resources automatically
➡️without any need of government intervention

⚫️️all economic decisions are taken by households and firms
➡️who are assumed to act in their own self interest

⚫️resources automatically allocated
➡️through interaction if demand and supple and price mechanism

Question 4

Whats the benefits of a free market

Answer 4

⚫️works automatically without any need for government decisions
➡️supply and demand determine relative prices
➡️shortages cause prices to rise
➡️whilst surpluses cause prices to fall

⚫️people work hard
➡️incentive of better pay
➡️more profit

⚫️competition between firms keeps prices down
➡️ keeps cost and waste down
➡️forces firms to produce the best possible quality and value of money
➡️this maximises consumer welfare

Question 5

What is the problems of free market

Answer 5

⚫️ethical objection
➡️encourages selfishness, self interest, materialism, greed

⚫suppliers may overproduce socially undesirable goods, more profit
➡️demerit goods, cigarettes, addictive goods

⚫️suppliers may not produce socially desirable goods, less profit
➡️merit goods, education, street lights

Question 6

Give examples of government intervention in a market economy

Answer 6

⚫️Interfering with prices 
➡️taxes 
➡️cigarettes to discourage consumption 
➡️subsidies
➡️to farmers to encourage production of food

⚫interfering with income
➡️ with taxation and welfare payments
➡️for equality between rich and poor

⚫️directly providing certain goods
➡️education
➡️because in free market
➡️we consumers wouldn’t want to pay for it

Question 7

Describe the type of economy on a PPF diagram

Answer 7

⚫️if point on PPF
⚫️closer to public sector of goods and services
➡️its moving towards command economy

⚫️if point on PPF
⚫️between public sector of goods and services, and private sector of goods and services
➡️its at a mixed economy

⚫️if point on PPF
⚫️closer to private sector of goods and services
➡️moving towards free market economy