Economics, Economic Systems, Sectors of the economy Flashcards
Economics…
is the study of how people allocate their limited resources in an attempt to satisfy their unlimited wants
Purpose of Economics, as a science,…
…is to study problems that come with economic activity and try to solve them
Economic act means…
…concerning the consumption of goods and services to satisfy certain needs.
What is an economy?
Economy is an organized system for the production, distribution and consumption of wealth.
An economic system..
…is an organized way in which a state or nation allocates its resources and apportions goods and services in the national community.
What are basic economic problems?
- What to produce?
- How to produce?
- For whom to produce?
What are 3 types of economic system?
- Market economy
- Planned economy
- Mixed economy
Market economy…
Capitalist economy/ free market economy
- Limited role of government (e.g., passes laws, provides essential goods & services (policing, national defence, judiciary),
ensures fair competition)
- Ownership of resources: By private individuals.
-Allocation of resources: By the market mechanism (forces of supply & demand)
- Competition: Yes.
-Advantages:
Competition →lower costs, wider choice of goods and services,
better quality
Disadvantages:
Firms may sacrifice public interest for profit, lower costs and
private interests; market imperfections, unequal distribution of wealth…
Planned economy…
Command economy
- Vital role of governemnt: owns resources, distributes goods and services, plans, organizes and co-ordinates production
- Ownership / allocation of resources: By the state
- Competition: No.
- Advantages: more equal distribution of income and wealth, production for need, not profit
- Disadvantages:
No competition🡪 standardised goods of little variety and low quality, 🡪 consumer choice is limited 🡪 standard of living is lower 🡪 low motivation to work
Mixed economy…
THE PUBLIC SECTOR
- Role of gov.: Supplies some public goods and services free at point of use
(paid for by taxes.)
- Ownership of resources: By the state
- Allocation of resources: By the state
- Competition: No.
- Advantages: The state provides a minimum standard of living for
everyone (welfare state)
THE PRIVATE SECTOR
- Role of gov.: Ensures fair competition, regulates private sector businesses through laws. Private sector businesses also benefit from public goods and services.
- Ownership of resources: By individuals and businesses.
- Allocation of resources: Market system (market mechanism)
- Competition: Yes.
- Individuals are allowed to own the means of production
Why does an economy need the public sector?
- Government regulation of private sector businesses (environment, workers’ rights, etc.)
Maintains the rule of law
Defense - Provides: education, health care, infrastructure, etc.
- Purchases goods and services from the private sector.
Why does an economy need the private sector?
- Taxes paid are used to finance the public sector.
- Provides goods and services that are not provided by the public sector.
- Creates jobs.
Market mechanism…
..is an exchange mechanism that brinsgs together sellers and buyers of a product, factor or production.
Public goods…
…are goods and services provided by a government for the benefit of all or most of the populace
Resources..
…are raw materials and means of labour (tools, machines) employed in the production process.
Standardized goods…
…products that are the same because they satisfy the sme tehnical requirements
Market imperfections…
…is the inability of markets to deliver goods and services
Standard of living…
..is the level of wealth, comfort, material goods and necessities available to a certain socioeconomic class in a certain geographic area
Sector vs. industry
Sector is a large segment of the economy.
Industry is a specific group of businesses (narrowed
focus)
- e.g. secondary sector vs. confectionery; tertiary
sector vs. real estate
Primary sector
What?
Raw materials, basic foods: making direct use of natural resources.
How?
Extracted form the ground:
- Mining: to mine (v), mine (n), miner, not minor!
- Quarrying: to quarry, quarries (v), quarry (n) e.g., stone, slate, minerals
- Collected: e.g., fishing, forestry, farming
- Harvested: e.g., agriculture (subsistence, commercial)
- Packaging and processing of raw materials
For whom?
Some for consumers (e.g., basic foods)
mainly for manufacturers 🡪 Secondary sector
Secondary sector
What?
Semi-finished goods, finished goods, utilities
How?
- Manufacturing: raw materials 🡪 finished goods
- Building and construction industries
- Utilities: co.s that supply water, gas, electricity.
For whom?
- Capital goods: for other producers
Help make other goods (welding equipment)
Provide services (delivery van)
- Consumer goods: to final consumer
Consumables: used up when consumed, e.g., bread
Consumer durables: last longer, e.g., TVs
TERTIARY SECTOR / SERVICE
INDUSTRY
What?
Services: intangible, often used up at the time of consumption
How?
transport/ distribution (of goods produced in secondary s.)
wholesale & retail (of goods produced in secondary s.) law, media, banking, insurance
For whom?
- for businesses: commercial services
e.g., helping in production, distribution of goods, advertising
- for consumers: direct services
hairdressing, restaurant meals, health care
- for both
e.g., financial services (banking, insurance, etc.)
QUATERNARY SECTOR /
KNOWLEDGE ECONOMY
Formed out of a subdivision of the tertiary sector.
What?
Knowledge-based services / intellectual services
- Culture
- ICT (Information and communication technologies)
- Consultancy (offering advice to businesses)
- R&D (Research and Development)
- Education
- Government
Drive technological advancement → economic growth
QUINARY SECTOR
Includes the highest levels of decision making
- government officials, highest levels of
researchers, business executives
What is employment structure?
Employment structure means how the workforce /labour force is divided
up between the main economic sectors.
