Mixed Economy Flashcards
State the options provided by economic systems
Market economy (supply and demand)
Planned / command economy (government allocation)
Mixed economy (a mixture of the above)
define economic systems
It is the structure by which a society allocates resources, produced goods and services to distribute them among the population
Define a Mixed Economy
It involves both private (businesses) and public (government) sectors to aid resource allocation through the market mechanism.
state some examples of both public and private services
Public basic services such as education, transport and health care
Private services such as restaurants, shops, tourism
Define a Public Sector
are owned by the government. They provide goods and services for the benefit of the community. They are run by the government and operate with money raised from taxes.
Define Resource Allocation
In the mixed economy, the market (supply and demand) will determine how MOST resources are allocated. I.E The businesses supply what the consumers demand. Even if this is demerit goods such as tobacco, alcohol and high-fat foods.
Define a Private Sector
are owned by the government. They provide goods and services for the benefit of the community. They are run by the government and operate with money raised from taxes.
Define Market Failure
an inefficient distribution of goods and services in the free market. In market failure, the individual incentives for rational behavior do not lead to rational outcomes for the group.
How can government intervene with Market Failure
provide public goods e.g. army, hospitals, police
provide under-provisioned merit goods e.g. education, health, roads.
decrease demand for demerit goods e.g. Drugs (law) and tobacco (law and taxes)
prevent monopolies (a company that has no rivals and can therefore exploit consumers)
control externalities e.g. pollution.
Define the free rider problem
when individuals benefit from a shared resource or public good without paying their fair share for it
