Chapter 1 Flashcards
What is the Economic System?
The manner in which decisions are made with regard to how the factors of production are organised in order to produce and distribute goods and services.
The 3 economic systems
1) Planned Economic System
2) Mixed Market System
3) Free Market System
The 3 main questions
1) WHAT is being produced
2) HOW is production taking place
3) FOR WHOM are they being produced
Planned Economic System
A system on what the Government needs. There is little emphasis that is placed on the manufacturing of consumer goods that ordinary man needs.
Planned:
What?
How?
Whom?
What the government approves of.
Government decides on quantity of products that requires production.
Government decides who receives the goods and services.
Advantages and Disadvantages of Planned
Advantages:
Theoretically speaking, there is no unemployment.
Government ensures all citizens have access to basic services.
Disadvantages:
Consumers’ needs are very low.
Limited choice of products.
Resources belong to government, little reason for citizens to preserve them.
Prices are controlled and set by Government.
Eg. North Korea/Cuba
Free Market System
A system where the government does not interfere in the functioning of the economy. Where economic activities depend on supply and demand.
Free:
What?
How?
Whom?
All items that are required.
Businesses who compete with one another to make as many products as they need to sell to make a profit.
People who are able to afford the products.
Advantages and Disadvantages of Free
Advantages:
Opportunity to work hard and become successful.
Entrepreneurship is strong because there is a financial reward and ensures competition.
Variety of products/services.
Resources are privately owned and people are motivated to use resources effectively.
Disadvantages:
Unfair distribution of wealth.
Monopolies are formed when there is one supplier.
Little motivation for people to provide public services.
Businesses can become unsuccessful due to competition.
Eg. USA
Mixed Market System
Production, distribution and pricing of goods and services are controlled by supply and demand. The government does control certain economic activities.
Mixed:
What?
How?
Whom?
Combination of what consumers are prepared to pay and what the government regards as important.
Government and entrepreneurs decide on this - depends on what is under discussion.
Both government and private consumers needs are taken into consideration.
Advantages and Disadvantages of Mixed
Advantages:
Social services are provided by the Government.
Government creates work opportunities.
Disadvantages:
Public sector is often bureaucratic.
Eg. South Africa
What is the Global economy?
International trading of goods and services.
Globalisation Advantages
Businesses don’t compete with other countries, they are importing and exporting.
There is freedom to work elsewhere in the world.
Capital can move freely between countries.
