LS6 - Types of Economies Flashcards
Who are the ‘actors’ within an economy?
Individuals, Groups, Institutions
Give examples of Individuals within the Economy.
Consumers and workers
Give examples of Groups in an economy.
Firms, charities, political parties
Give examples of Institutions in an Economy.
Government, Parliament, Legal System
What are the 2 methods used to allocating resources?
Planning
Market mechanism
Explain how planning is used to allocate resources.
Planning is funded by taxpayers and is how the government decide to allocate resources in an economy
Explain how market mechanism is used to allocate resources.
Market mechanism is how the market itself decides how to allocate its resources
What is a market?
Anywhere that sellers and buyers can exchange goods and services
What is a command economy?
An economy where the resources are provided solely by the state
What is a mixed economy?
An economy where the resources are allocated by the state and the price mechanism
What is a free market economy?
An economy where the resources are allocated solely by the price mechanism
What is the public sector of an economy?
The part of an economy which is controlled / owned by the Government
What is the private sector of an economy?
The part of an economy which is not controlled / owned by the Government
What is profit motive?
A reason to try and change so they can become more efficient and make more profit
Why is it beneficial for firms to have a profit motive and competition?
Because they are more incentivised to increase their quality and innovation
Why is it beneficial for consumers if firms have a profit motive?
Because firms would meet consumer demand more often and produce a wider range of products to make more money
Why is profit motive absent in command economies?
Because firms are told what to produce
Why do consumers get less freedom of choice of products in command economies?
Because firms are told what to produce and there is no profit motive so they are not incentivised to make a wider range of products
Why is quality and innovation higher in mixed and free economies compared to command economies?
Because there is more profit motive in mixed and free economies so companies are incentivised to make more products with higher quality
What can cause profit motive to decrease in economies?
Monopolies and concentrated markets can limit choice in markets
What is efficiency?
Ensuring that your production and distribution of scarce resources are at its maximum potential
Do free markets have a more equitable distribution of wealth and income or a less equitable distribution compared to command economies?
Less equitable distribution
Why do free markets have a less equitable distribution of wealth and income compared to command economies?
Because owners of Capital and Land in free market economies accumulate wealth over time and pass over their privilege
Why might command economies still lack equitability?
Some people may have better opportunities / access to public services
What is a state made up of?
Territory, Population, Government
What is the relationship between the state and the government?
The government rules over the state
What is the difference between the government and the state?
The state is permanent whilst the government is temporary
The state includes all citizens while the government does not
What is the role of the state in mixed economies?
Allocating resources through planning
Redistributing incomes through welfare spending
Regulating consumers and firms
What is factor intensive production?
Production that relies heavily on one factor
What are capital intensive societies?
Societies where the production heavily lies on producing Capital goods
What are labour intensive societies?
Societies which focus on the wellbeing of the workforce and citizens
Between Capital and Labour intensive societies, which tends to have a higher standard of living, and why?
Capital intensive societies because more Capital increases productivity
What are demerit goods?
Goods which are illegal and banned in certain economies
What is a forward market?
Agreeing to sell or buy something in a certain amount of time
What are retail banks?
Banks which provide services to individuals
What is a financial market?
A place where buyers or sellers can trade goods and services with a monetary value
What is a sub-market?
A market that is within another market
What are the 3 main sectors the economy has been divided into?
Primary
Secondary / manufacturing
Tertiary / service
What is the primary sector?
Extracting raw materials and growing food
What is the secondary sector?
Where raw materials are transformed into goods
What is the tertiary sector?
Sector which provides services such as education, sport and leisure, etc.
What does self-sufficiency mean?
Being able to provide all the things you need without needing other people
What is a monopoly?
A seller that has 25% or more shares in the market or are one of many big sellers
