Allocation of resources

Question 1

what is a planned economy ? and what are some advantages and disadvantages ?

Answer 1

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A planned economy is when the government decide how resources should be allocated .
adv:
- maximised welfare (equality)
- low unemployment
- prevents a monopoly
-government dictates price
-effeceitn use of resoruces (less wasteful)
less rent seeking
dis-adv:
- poor decision making
- consumers will have restricted choice
-x-ineffecient, productive ineffecient and allocative ineffecient
-internationally less effecient
-produce inferior goods at a higher cost

Question 2

what are the advantages and disadvantages of a free market ?

Answer 2

advantages:
- encourages innovation // entrepreneurs
- more products / services for consumers
-more efficient
- competitive market
dis-adv:
- inequality within income
-little regulation
-market dominance
-provision of demerit goods

Question 3

what is the definition of ‘market failure’ ?

and what happens when the is a market failure ?

Answer 3

market failure is when free markets result in undesirable outcome .
when market failure occurs the government tend to intervene and change the law to offer tax breaks in order to change consumer behaviour

Question 4

what is an incentive ?

Answer 4

an incentive is a thing that encourages people to do something ; e.g the government use a tax break as an incentive to change consumer behaviour

Question 5

what is a mixed economy ?

Answer 5

a mixed economy is when both the government and the markets play a part in allocating resources .

Question 6

what is productive efficiency and allocative efficiency ?

Answer 6

productive efficiency = optimal method of producing , lowest cost
allocative efficiency = optimal distribution of goods and services , particular mix of goods that society most desires

Question 7

what is a public good?

Answer 7

a public good is a good , that is non-rival and non excludable
e.g Military Defence, Street lights, Road signs