Economic Systems Flashcards
What is an economic system?
A mechanism used by a society to determine how to best allocate scarce resources
What are the three economic questions?
What should be produced?
How should they be produced?
For whom should they be produced?
What are social values & goals?
What does society want, and what is society looking to achieve
What are the three most common economic systems around the world?
Free market (AKA market economy)
Centrally-planned economy (AKA command economy)
Mixed economy (AKA Keynesian economy)
How does the free market (market economy) operate?
operates on its own through competition and consumer purchasing without government interference
What is “the invisible hand”
Natural market forces that allow the market to control itself
It’s the key to free market economy
What is lassez faire economics?
Theory that suggests that an economy is strongest when the government stays out of the economy entirely and let’s market force behave naturally
How does the centrally-planned economic system operate?
The market operates under the centralised planning of the government
DICTATORSHIP
When do productive inefficiencies occur?
When governments waste scarce resources by producing products at higher than necessary costs
What is allocative inefficiencies?
When the market fails to produce what society needs and wants the most
What are the two market failures?
Allocative inefficiencies
Productive inefficiencies
What is the mixed economic system?
Where the free market (private sector) and the government (public sector) work together to meet social needs
What is the most commonly deployed economic system in the world?
The mixed economic system
What is macroeconomics
The study of mixed economies
