5. Economic Systems Flashcards
basic economic questions, theories of Smith and Marx, types of economic systems
Process of production
Inputs > Production (Allocation) > final outputs > Distribution > Consumption
3 economic questions
what, how, whom to produce
What starts the problem of scarcity
Unlimited needs and wants + limited resources
What is Laissez-Faire Economy
Adam Smith
3 questions of what, how, whom, are all determined by
(what) consumer preferences,
(how) seeking profits
(whom) purchasing power
Command Economy
Karl Marx
3 econ questions are determined by government (what, how, whom)
Traditional Economic System
- decisions are based on customs, traditions and beliefs,
-barter system
-resources are allocated based on needs of the community
-little growth and innovation
Market Economic System
-econ decisions are made by individuals and businesses
-prices are determined by supply and demand
-competition encourages innovation and efficiency
-limited government intervention
Command Economic System
- ALL CONTROLLED, ALL DECISIONS MADE BY THE COVERNMENT
- no competition
-no consumer choice, little to no innovation or growth
Mixed Economic System
- econ decisions are made by individuals/businesses
-rights r protected
-market forces determine prices and allocation of resources - some government intervention to address market failures and promote social welfare
What is utility
measured by utils, satisfaction that comes from consumption
Comsumption
Usage for the goods and services
Why is the additional utility not constant?
The added satisfaction will go down because of saturation
