Micro - Free Market Economies, Mixed Economy & Command Economy ✔️ Flashcards
Free Market Economy
A market without government intervention or regulation. In a purely free market, buyers and sellers arrive at prices based only on supply and demand.
Mixed Economy
A market that protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims
Command Economy
Where a central governmental authority dictates the levels of production that are permissible and the prices that may be charged for goods and services.
Adam Smith Theory
Adam Smith was among the first philosophers of his time to declare that wealth is created through productive labour, and that self-interest motivates people to put their resources to the best use. He argued that profits flowed from capital investments, and that capital gets directed to where the most profit can be made.
Friedrich Hayek Theory
Hayek’s theory posits the natural interest rate as an intertemporal price; that is, a price that coordinates the decisions of savers and investors through time. The cycle occurs when the market rate of interest (that is, the one prevailing in the market) diverges from this natural rate of interest.
Karl Marx Theory
His key theories were a critique of capitalism and its shortcomings. Marx thought that the capitalistic system would inevitably destroy itself. The oppressed workers would become alienated and ultimately overthrow the owners to take control of the means of production themselves, ushering in a classless society
Role of state in mixed economy
the government is involved in planning the use of some resources and can exert control over businesses in the private sector. Governments may seek to redistribute wealth by taxing the private sector and by using funds from taxes to promote social objectives.
