The Mixed Economy Flashcards
what is an economy
an economy is a system that attempts to solve the basic economic problem
what do descision makers in an economy have to decide
what to produce, for whom to produce and how to produce
what are the types of private sector organisations (3)
sole traders
partnerships
companies
what are sole traders
one person that ownes and controls a business such as a corner shop
what are partnerships
businesses that are owned by between 2-20 people, often found in professions
what are companies
where shareholders own a business, they elect a board of directors which work on their behalf and run the company
what are the aims of private sector businesses
survival
growth
social responsibility
profit maximisation
what are the 3 types of public sector organisations
central government organisations like dep of health, or ministry of defense
public corpororations/ state owned,
local authorities like northumbrian police
other public sector organisations like BBC
what are the 3 types of economies
a market or free enterprise economy
a command or planned economy
a mixed economy
what is a market economy
an ecconomy which relies least on public sector for the provision o goods and services, most are supplied by the private sector, the public sector is there for the legal system or monetary system, such as policing and defence, to make sure competition exists
what is a planned economy
an economy which soley relies on public sector for the privision of goods and services, all resources belong to the government, goods are sold from state owned shops and prices are set by the state, examples are cuba, myanmar and north korea
what is a mixed economy
an economy which relies both of public and private sector to provide goods and services
how does the market decide what to produce in a mixed economy
a mixed economy recognises that some goods such as consumer goods are best provided by private sector businesses, goods such as education street lighting are best provided by the state as these goods are more for wellbeing and consumer goods are more luxury, the public sector tends to provide what private sector fails to
how do mixed economies decide how to produce
privaet sectors usually aim to make profit, consumers aim to maximise benefit so private sector businesses will provide the best quality goods through a range of production methods due to competition between firms, such as manufacturing plants etc, public sectors have the government deciding how things will be produces however they may pay private sector businesses to carry out te actual work, such as construction
how do mixed economes decide for whom to produce
private sector provide goods to anyone who can afford them, in contrast public sectors provide goods usually for free and are paid with taxes, public sectors also have provisions for people with disabilities
how do governments decide on the degree of mixing and what are the effects
different governments can decide the amount of mixing in a government, for example france gov play a greater role in the econonomy, supplying most products however the taxes will be greater
what are the reasons for market failure (5)
MELLF
Missing markets
externalities
lack of competition
lack of info
factor immobility
what is market failure
when the market leads to inefficiencies, usually leading to gov intervention
how can externalities cause market failure
sometimes businesses fail to acknowledge all costs of production, for example a business may pollute the air, this will cause damage to residents because of poor air quality, so the chemical firms has failed to meet the costs from damaging citizens
how can lack of competition cause market failure
lack of competition may lead to a monopoly or oligopoly, a few large farms or one firm dominating the market, exploiting economies of scale and charging high prices to consumers
how can lack of info cause market failure
consumers need to know all about the product, the type, the price and availability, aswell as businesses need to know the resources needed to make a product and production techniques, if information is slow or lost or misunderstood then consumers will buy the wrong products, leading to consumer disatisfaction and waste, and businesses will buy the wrong resources, slowing supply and leading to wasteful resources
what are merit goods
goods which are under provided by the private sector
what are public goods
goods which are not likely provided by the private sectors and usually provided by the government, public sector
how can missing markets cause market failure
some goods cannot be provided by the private sector such as national defence and policing, as they would be a liability and a threat as they may exploit the nation, merit goods such as healthcare and education is not likely to be provided by the private sector as it would be too expenive, aswell as public goods which private wont sell as there will not be much ROI
how can factor immobility cause market failure
some factors of production need to be mobile, such as labour capital and resources, though in practise they can be quite immobile, such as laser machines to cut glass, it may be big and heavy and may have to be destroyed if the factory is shut down, leading to wastefullness
how can the government intervene to prevent market failure
you can answer this question by just thinking of MELLF
Missing markets - the goverment may supply public and merit goods through state money which would benefit the wellbeing of everyone, the public sector may provide free of charge
Externalities/lack of competition - Governments may impose legislation to businesses that impose externalities such as fines, carbon tax etc, they can also prevent mergers if the merger is in the interest of consumers and to prevent economies of scale
Lack of info - to imporve flow of info, gov and impose legislation making it legally required to produce certain information about products to the public, though the internet has improved that
factor immobilty - governments can help mobilise factors such as retraining labour forces
why is it impossible for private sector businesses to private public goods
because public goods are non excludable meaning you cannot refuse consumption to an individual, and a consumer cannot refuse consumption even if they wanted to, like police force
and non rivalry, means consumption of a good by a consumer cannot reduce the supply for another consumer
for these reasons they have to provide the goods, if the private sector would provide it there would be a free rider problem, because of non excludbility, consumers cannot be excluded from consumption so there would be little reason to pay for it
what is a free rider
an individual who enjoys the benefits of a good but allows others to pay for it
