9. Economic Systems Flashcards
What are some characteristics of a Market Economy?
The decision on the allocation of resources are based on Demand & Supply
The government has no influence in how resources are allocated.
The private sector decides how to answer the 3 economic questions
What are the advantages of a Market economy?
Efficiency: high levels of competition makes the firms listen very carefully to what consumers want.
Freedom of choice: no government regulations preventing you from a certain career or buying a certain
Incentive: the possibility of great wealth can provide a large incentive to work hard
What are the disadvantages of a Market economy?
Environmental issues: no consequences to resource depletion, pollution and climate change
Inequality: the rich have more choice, the poor stay poor. Production of goods and services is geared to satisfying those with the money to buy them.
Social problems: No government control means o public goods.
What is a Planned/Socialist/Command Economy?
The 3 economic questions are answered by the government.
They decide what is produced, how it is produced and for who it produced for.
Equality is the main belief, so wages re paid almost equally regardless of your role within the system
Very little international trade. The government prefers to be self sufficient
What are the advantages of a Planned Economy?
Prevents wastage: The state believes in only producing what is necessary in order to protect scarce resources and use them properly and minimise negative externalities like pollution.
Social Equality: A planned system allows everyone’s basic needs to be met.
Economies of scale: Having large national suppliers of goods and services allows for higher levels of efficiency.
What are the disadvantages of a Planned Economy?
Lack of freedom: No real choice in what to buy or sell or even what career you would like.
No Incentive: No incentive to work harder for more pay or status.
Profit is not the aim
What is a Mixed Economy?
A combination of a Planned and Market economy.
How much the government gets involved is determined by the government themselves
Essential services and Merit goods are provided by the government.
Profit motive within businesses
What is the role of the government in a Mixed economy?
The government exists primarily to redistribute income through social welfare and pension
