T1: LS6 - Economy Types Flashcards
Define command economy
A type of economy where a central authority or government holds all power and control where they decide what is produced, how it is produced and its prices. This aims to protect and maximise consumer welfare and utility.
Define free market economies
This refers to an economic system in which the prices of G&S are determined by price mechanisms between supply and demand expressed by sellers and buyers. This aims to meet the demands of the economy and is privatised industry.
Define mixed economies
A mixed economy is an economy which uses a mix of free and command economies where both a centralised authority and price mechanism determine how the economy functions. This includes both private and public sectors
What is mnemonic for benefits of Command economies/ drawbacks of free economies
I - Industries
M - Monopoly limits
P - Price
P - Public goods
E - Equality
N - Negative externalities
D - Demerit goods
S - Social benefits
What is the mnemonic for the benefits of a free market economy/ drawbacks of command economies
S - Supply
P - Products
I - Innovation
C - Competition
E - Efficient allocation
D - Demand
How do governments plan?
They do this through using taxation to gain funds which can then be used to allocate resources.
Define a market
An area/location/ medium at which buyers and sellers are able to exchange G&S either digitally or physically.
Define Price Mechanism
The process by which the market allocates resources and determines price using demand, supply and buyer and seller interaction.
Define Public sector
The public sector is the part of the economy which is controlled or owned by the government.
Define private sector
The sector not controlled by governing bodies but by private industries that determine price, production and for whom.
Define efficiency
Refers to the optimal production and distribution of resources in a quick way to satisfy demand with limited resources.
What is the “state” made up of in an economy
Consumers
Territory
Government
