LS6 - Types Of Economy Flashcards
What is planning?
When the government allocates resources through taxation
What is a market?
Buyers and sellers exchange goods and services. (Can be physical or digital)
What is a price mechanism?
The process which the marker allocates resources
What is the difference between planning and price mechanism?
Planning is a public sector and price mechanism is a private sector (government and firms)
What is a command economy?
An economy which resources are allocated solely by the state. (China and North Korea)
What is a mixed economy?
An economy which resources are allocated by the state and the price mechanism. (UK)
What is a free market economy?
An economy in which resources are allocated solely by the price mechanism. (USA)
What do firms have in free market and mixed economies?
A profit motive
What does a profit motive in these markets lead to and incentivise?
A wider choice and allows firms to develop new products and firms to meet consumer demand
When is the profit motive absent? And why?
Command economies, firms are told what to produce by the state which limits choice for consumers.
What can limit choice in free market and mixed economies when there is price mechanisms present?
Concentrated markers and monopolies
What is a concentrated market and monopoly?
A concentrated market is a market with a few large sellers, monopolies is a firm that dominates the market (you need 25% or more of the market share to dominate)
What is higher in mixed and free market economies and why?
Quality and innovation because both competition and profit motive are present in these economies.
What is a disadvantage of efficiency?
Efficiency is concerned with optimal production and distribution of scarce resources
What markets are more efficient than others?
Mixed and free market as command economies lack competition and profit motive due to it being run by the state as a concentrated market.
