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.
