Resource Allocation in different Economic Systems Flashcards
Define “Economic System”
The way in which production is organized and choices are made in an economy
Define “Allocative Mechanism”
“Allocative Mechanism” is the method by which scarce economic resources are allocated between alternative uses
Define “Market Mechanism”
Market Mechanims, or the price Mechanism is when resource allocation decisions are taken by individual producers and consumers with no government intervention.
Define “Market”
Space that brings together buyers and sellers to exchange products
Define “Price Mechanism”
The process in which changes in price (resulting from demand/supply changes) bring about changes in resource allocation
What are the advantages of a Market Economy
- Government can concentrate elsewhere
- Firm Innovation
- Consumer Welfare
- Maximization of Consumer and Producer Surplus
Disadvantages of a Market Economy
- Lack of Public Good provision
- Merit Good under-consumed and underproduced
- Demerit Good Over-produced and over-consumed
- Negative Externalities.
Define a “Planned Economy”
an economic system where resources are state owned and allocated by a central body.
Define “Productive resources:”
Resources that are available to be used
What are some advantages of a Planned Economy?
1) Decisions Regard the Interests of the Whole Society:
2) State can Decide Which Goods to Produce
3) Price-Stability is very Likely
4) Lower Unemployment Rate is very Likely
What are some disadvantages of a Planned Economy
1) Bureaucracy
2) Firm Inefficiency
3) Economic Inefficiency
4) Short Option Diversity + Poorer Quality of Goods/Services
Define “Mixed Economy”
Type of Economic System where resource allocation is taken by both private and public sector
Define The Private Sector
that part of an economy under private ownership
Define “The Public Sector”
that part of an economy under government ownership
Define “Privatization”
Where there is a change in ownership from public to the private sector
