Microeconomics - L2 Economic Systems Flashcards
What is efficient resource allocation?
Efficient resource allocation is when an economy is maximising its output from its inputs and therefore maximising the nation’s living standards.
What are the 3 fundamental economic questions?
What to produce?
How to produce?
For whom to produce?
How are the 3 fundamental economic questions answered?
The three fundamental economic questions are answered by the economic system in use within an economy.
What are the 4 types of economic systems?
Market capitalist
Planned capitalist
Market socialist
Planned socialist
How are the 3 fundamental economic questions answered in a market capitalist system/economy?
What to produce?
Based upon what consumers want and are willing to pay.
How to produce?
Producers choose the most efficient method possible.
For whom to produce?
Will be determined by the market. ie. whoever has the money to pay for the goods and services.
Who owns the production resources in a market capitalist system/economy?
Individuals / Producers / Business owners
What is the level of government intervention in a market capitalist system?
Low
What is a market capitalist system driven by?
The desire of producers (business owners) to make a profit.
This means those who don’t have the money will have to miss out on some goods and services.
What are 3 examples of countries that operate under a market capitalist system?
Australia, UK, USA, Japan
How are the 3 fundamental economic questions answered in a planned capitalist economy?
What to produce?
Based upon decisions by government
How to produce?
Based upon decisions by government
For whom to produce?
Based upon how the government wants goods and services distributed.
Who owns the production resources in a planned capitalist system/economy?
Individuals / Producers / Business owners
What is the level of government intervention in a planned capitalist system?
Fairly high
What is a planned capitalist system driven by?
The desire for producers (business owners) to make a profit, but also the government’s desire for people to have equal access to goods and services.
What is an example of countries that operates under a planned capitalist system?
There isn’t one.
This type of economy doesn’t currently exist.
How are the 3 fundamental economic questions answered in a market socialist economy?
What to produce?
Based upon what consumers are willing to pay.
How to produce?
Based upon what consumers are willing to pay.
For whom to produce?
Based upon who has the money to pay for goods and services.
Who owns the production resources in a market socialist system/economy?
The government
What is the level of government intervention in a market socialist system?
High
What is a market socialist system driven by?
Profit made in the market for the government, but also a more equal distribution of resources / access to goods and services can be attempted.
What is an example of a country that operates under a market socialist system?
Cuba
How are the 3 fundamental economic questions answered in a planned socialist economy?
What to produce?
Based upon what the government believes the people need.
How to produce?
Based upon what the government determines to be efficient allocation.
For whom to produce?
Based upon what the government believes the people or nation needs.
Who owns the production resources in a planned socialist system/economy?
The government
What is the level of government intervention in a planned socialist system?
Very high
What is a planned socialist system driven by?
The government having control over factors of production and distribution.
What is an example of a country that operates under a planned socialist system?
North Korea
Which economic system is likely to allocate resources most efficiently and why?
Market capitalist system.
This is because producers are motivated by profit. Therefore, they will look for ways to keep their costs down. Eg. reduce waste.
This will allow them to maximise their output (goods or services produced) from their inputs (resources used in production).
