LS6 - Types of Economy

Question 1

Three types of economy

Answer 1

-Free Market
-Mixed Economy
-Command Economy

Question 2

The price mechanism

Answer 2

Where demand and supply determines prices of goods

Question 3

Command Economy Advantages and Disadvantages

Answer 3

Advantages
- Prevents Monopolies from existing
- The state provides a minimum standard of living. This means that workers have secure incomes and there is less inequality
- Merit goods which are like medicines and other healthcare products that do not generate a large profit are produced

Disadvantages
- Less choice for consumers. Consumers have to choose goods between a limited amount of goods
- Because there is no profit motive, there is a lack of both innovation and efficiency because firms are not competing with each other

Question 4

Free Market Economies Advantages and Disadvantages

Answer 4

Advantages

• Because firms are in direct competition with each other, there is a profit incentive meaning it can drive innovation and more efficient economy
• There also is higher motivation because people know working hard will directly correlate for rewards

Disadvantages

• Inequality within markets
• Merit goods which are low Profit goods like Drugs and Medicines aren’t Made
• The development of monopolies meaning that enterprise is not largely viable and the services provided may be low quality

Question 5

Efficiency

Answer 5

Maximising desired outputs given available inputs

Question 6

State

Answer 6

The state is made up of
-Government
-Teritory
-Citizens
The difference between the state and the government is that the state is permanent but the government isn’t. The state is made up of Territory and Citizens but the Government isn’t

Question 7

The Free Market

Answer 7

In a free market, individuals are free to make their own choices.

There is no government interference.

Resources are solely allocated through the price mechanism

Question 8

The Command Economy

Answer 8

All factors of production is owned and ran by the state.

Very limited choice.

Merit goods like pharmaceuticals and medicines are made because there is no profit motive.

Not very efficient

Question 9

Mixed Economy

Answer 9

This is an economy where the price mechanism allocates resources but also a market in which there is government intervention.

It is used to
- Reduce income inequalities by taxing the rich and giving to the poor
- Prevent the abuse of monopolies

Question 10

A Monopoly

Answer 10

This is where a company that takes up more than 25% of the market share can be considered to have monopoly power and this allows them to take control of the market to reduce competition