L6 - Economic Systems Flashcards
What is planning (government)?
Process in which the government allocates its resources (funded through taxes)
What is a market?
Anywhere where buyers/sellers exchange goods/services (physical or digital)
What is a price mechanism?
Process by which the market allocates resources (found in free market/mixed economies)
What does the price mechanism looks like?
Supply and demand graph - people/firms do it for profit and so use the equilibrium line to choose what to produce
What is equilibrium?
Where price meets demand
What is a command economy?
Resources allocated by government/state - public sector
What is public sector?
Part of the economy which is controlled/owned by the government
What is another name for a command economy?
Centrally planned economy
What does the government decide in a command economy?
What to produce
How to produce it
Who to produce it for
What is a free market economy?
Economy in which resources are allocated solely by the price mechanism
What is a private sector?
Part of the economy which isn’t controlled/owned buy the government
What is different about a free market economy than a command economy?
The market decides:
What to produce
How to produce it
Who to produce it for
(Not the government)
What is a mixed economy?
An economy which has aspects that are both public and private sector (the UK)
Why might a free market economy be better than a command economy?
Quality and innovation is higher
Higher efficiency
What causes the strengths of a free market economy?
It has COMPETITION and a PROFIT MOTIVE
