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
What is a downside to a free market economy?
Less equitable distribution of wealth
What are the disadvantages of a command economy?
Profit motive is absent - firms told what to produce - leads to limited choice from consumers
May lack equitability in terms of opportunity and access to public services
What is a concentrated market?
A market where a few large suppliers own the market (smartphones)
What is a monopoly?
A company which owns 25% of a market
What is efficiency?
Optimal production and distribution of scarce resources
What is progressive tax?
Higher tax on richer people
What is state made up of?
Territory
Citizens
Government
What is the difference between a state and a government?
State is permanent and is made up of all citizens whereas a government is neither
What is the role of state in a mixed economy?
Allocate resources by planning
Redistribute income through welfare spending
Regulates customers and firms
