The Mixed Economy Flashcards

1
Q

What is a planned/command economy?

A

An economy where all key economic decisions are made by the government

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2
Q

What is a free market economy?

A

An economy where all key economic decisions are made by individuals and firms

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3
Q

What is the public sector?

A

Any organisations owned/controlled by the government

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4
Q

What is the private sector?

A

Any organisations owned/controlled by individuals and firms

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5
Q

What are the four types of public sector organisations? Name an example of each.

A

Central government departments (eg. Central Bank of the UAE)
Public corporations (eg. DEWA)
Local authority services (eg. KHDA)
Other public service organisations (eg. police)

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6
Q

What are the four aims of the public sector?

A

Improving quality of services
Minimising costs
Allowing for social costs and benefits
Profit

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7
Q

What are the three types of private sector organisations?

A

Sole Traders
Partnerships
Companies

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8
Q

What is the aim of the private sector?

A

They are usually driven on self-interest or profit maximisation but can have other objectives.

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9
Q

Define ‘market failure’.

A

When the market fails to provide resources efficiently.

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10
Q

What are the five causes of market failure?

A
Externalities
Lack of Competition
Missing Markets
Lack of Information
Factor Immobility
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11
Q

What is an externality?

A

The cost or benefit that a third party incurs as a result of production/consumption of a good or service

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12
Q

How do externalities lead to market failure?

A

Firms don’t take into account all the costs of production which can lead to negative external costs being imposed onto society.

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13
Q

How does lack of competition lead to market failure?

A

One or two companies dominating a market can lead to high prices for consumers and inefficiency

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14
Q

How do missing markets lead to market failure?

A

The public sector has to provide goods and services that the private sector doesn’t see a profit incentive in so that everyone can afford them.

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15
Q

What are merit goods?

A

Goods that are underprovided by the public sector

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16
Q

How does lack of information lead to market failure?

A

Individuals and firms may not behave efficiently as they don’t have perfect information

17
Q

How does factor immobility lead to market failure?

A

Markets rarely have mobile factors of production which means they tend to be inefficient due to being unable to respond.

18
Q

What are public goods?

A

Goods and services provided by the public sector that tend to be non-excludable and non-rivalrous (subject to the free-rider problem)