Economic Systems + Model Flashcards
What is a traditional economy? + example
Based on culture and rituals, and is focused on the community as a whole
- traditional Inuit village in America
What is a command economy, what does it include and example?
Relies on the government to make all economic decisions
- includes allocating and distributing resources and regulating prices and wages
- e.g North Korea
What is a market economy?
Driven by consumers whose decisions determine how the industries and financial markets will operate
- no government involvement
What do individuals choose in a market economy?
- how their resources are used
- what goods to make
- what services to provide
- what jobs to take
What is a mixed economy? + example
Utilises limited government involvement while also applying free market concepts
- e.g USA
What are the sectors of the economic model? (5)
- households
- firms
- financial
- government
- overseas
What is the household sector?
Individuals
- own resources
- buy goods and services
What is the firms sector?
Business enterprises
- produce goods and services
- buy resources
What is the financial sector?
Businesses that borrow and lend money
What is the government sector?
- federal, state and local governments
- satisfy community wants by providing collective goods
What is the overseas sector?
Foreign businesses
- exports and imports
What are the leakages of the model?
- Savings (for capital goods)
- taxation
- imports
What are the injections of the model?
- investment (of capital goods)
- government expenditure
- exports
What do leakages and injections do?
- leakages contract (slow down)
- injections expand (speed up)
When is the economic model in equilibrium?
When leakages equal injections
- rarely happens
