Free Market Economies, Mixed Economies And Command Economies

Question 1

Free market economies

Answer 1

-economic decisions are primarily made by private individuals or firms
-Key figures:Adam smith who advocated for the “invisible hand” of the market to allocate resources efficiently
L

Question 2

Command economy

Answer 2

-government or central authority makes all economic decisions
-key figures:Karl Max, who envisioned a classless society with centralized planning, and Friedrich Hayek, a critic of central planning who believed in free markets.

Question 3

Mixed economy

Answer 3

-Both private sector and government play significant roles in economic decision-making
-combine elements of free market and command economies
-example:most modern economies, including the US, have mixed economic systems

Question 4

Advantages of free market economy

Answer 4

-Efficiency:competition incentivises firms to produce efficiently and innovate

-consumer choice-consumers have a wide range of choices in products and services

-economic growth-free markets can lead to rapid economic growth and higher living standards

-example-US free market system has led to significant technological advancements and economic growth

Question 5

Disadvantages of a free market economy

Answer 5

-Inequality- Income and wealth disparities can be significant
-lack of public goods-some essential services may be unprovided without government intervention
-boom-bust cycles-free markets can be prone to economic cycles of booms and busts
-example- the 2008 economic crisis exposed some of the shortcomings of unregulated financial markets

Question 6

Advantages of command economy

Answer 6

-equality-aim to reduce income inequality through central planning
-stability- central control can provide stability during crises.
-prioritising social goals-recourses can be directed toward public services and social welfare.
-example-North Koreas command economy focuses on central planning and state control.

Question 7

Disadvantaged of command economy

Answer 7

-lack of incentives- central planning may discourage innovation and individual initiative
-resource miss allocation-inefficient allocation of resources can lead to shortages or surpluses.
-bureaucracy-command economies often involve complex bureaucracies.
-example-the collapse of the Soviet Union highlighted the challenges of central planning.

Question 8

Roles of a state in a mixed economy

Answer 8

1.regulation
-the state regulates various aspects of the economy like consumer protection, environmental standards and financial markets
-example-government agencies like the environmental protection agency set standards for pollution control

2.public goods and services
-government provides public goods and services that may not be adequately supplied by the private sector, including infrastructure, education and healthcare
Eg public schools

3.welfare and redistribution
-governments implement social safety nets and income redistribution policies to address poverty and inequality
Eg welfare programs and progressive taxation aim to reduce income disparities

4.stabilization and economic planning
-governments may use fiscal and monetary policies to manage economic cycles and prevent economic crises.
Eg central banks adjust interest rates to control inflation and promote economic growth