Opportunity cost and Economic System Flashcards
Some commentators have argued that Ireland is moving towards a free enterprise economic system. Do you agree with this statement? Give three examples to justify your answer
Privatisation- in recent years we have witnessed the sale of my state enterprises such as aer lingus and Eircom.
Deregulation - This involves allowing greater competition into an industry e.g taxi industry
Public Private partnerships- the government have been using PPP’s to build schools, hospitals, etc.
Give three examples of economic activities that support the view of Ireland as a Mixed Economic System
The existence of semi-state bodies and private enterprises side by side - There a both public and private goods/services in areas such as transport, energy and communication.
Social partnership- this has allowed the government and other social partners to set and achieve targets over an agreed period of time.
Government departments/Various regulators - Regulators exist to watch over the activities of certain industries. E.g the financial regulator monitors the financial sector in this country.
Explain:
Opportunity Cost
Choice
Scarcity
Opportunity Cost- This is the cost of forgone alternatives. Economics studies the allocation of scarce resources which have alternative uses. The allocation of these resources involve choice i.e opportunity cost
Scarcity/Choice - The supply of resources is limited while the demand for these resources are unlimited. These resources have alternative uses and so the allocation of these resources involves making a choice i.e opportunity cost
What is a centrally planned economic system?
Centrally planned - In this economic system system nearly all the factors of the production are owned by the government except labour. In this economic system consumers, workers and the government are assumed to be selfless and working together for the common good.
Advantages of a centrally planned economic system -
More equal distribution of wealth- As the government sets wage rates for all workers it helps to reduce inequalities in society.
Provision of key services- the government ensures all its citizens have access to vital services such as education and healthcare.
Full employment- Historically centrally planned economic systems were associated with high levels of employment.
Economic Disadvantages of a centrally planned economic system -
Choice- As all goods are provided by the government consumers have a restricted choice. In addition workers have little say in what areas they work.
Shortages of goods/services - As the government limits prices this can create huge demand for goods/services resulting in queues.
Inefficiencies- In a centrally planned economic system there is very little incentive for individuals to work hard or innovate.
Low levels of economic growth- as individuals are not motivAted by self interest there may be reduced economic activity in the economy.
Define free enterprise/laissezfaire economic system
In this economic system nearly all the factors of production are privately owned, there is limited government interference and citizens are motivated by self interest.
Advantages of a free enterprise economic system-
Choice- as long as consumers have the necessary purchasing power/resources they have a wide choice of goods/services to choose from.
Efficiency- there is an incentive for firms to be efficient as those who aren’t will be pushed out of the marketplace by those firms with lower costs.
Economic growth - As citizens are motivated by self interest productivity is high and this helps to promote high levels of economic growth.
Innovation - There is an incentive for firms to innovate as those that do will
Command greater sales and profits.
Economic disadvantages of a free enterprise economic system -
Wealth inequalities - Individuals who are unable to supply a factor of production have no source of income
Lack of essential public services - If an activity does not make a profit it may not be available to citizens.
Growth of monopolies - Some firms or individuals may gain total control of particular industries.
Define a mixed economic system-
This is an economic system that combines elements of both centrally planned and free enterprise economic systems.
Advantages of a mixed economic system-
Choice- goods are provided by private enterprises and the state, giving consumers a great choice.
More equal distribution of wealth- a mixed economic system provides a safety net to prevent people from living in absolute poverty. At the same time people are able to enjoy the financial rewards of hard work and entrepreneurship.
Efficiency- The majority of business or private firms are more efficient than government controlled firms. This is because private firms have a profit motive which involved keeping costs at a minimum.
Regulation - Some regulation is necessary in order to prevent market abuses by monopolies such as consumers being charged excessively high prices.
Economic disadvantages of a mixed economic system -
Bailouts - The government may be forced to financially support industries or firms which are considered critical to the economy. The funds used have an opportunity cost.
Regulation- too much regulation would be a concern to businesses and multinationals who may see it as a move towards a more centrally planned economic system.
Political divide- a large public sector may be politically divisive if it is femmes to be ineffective.
