The Mixed Economy

Question 1

what is an economy

Answer 1

an economy is a system that attempts to solve the basic economic problem

Question 2

what do descision makers in an economy have to decide

Answer 2

what to produce, for whom to produce and how to produce

Question 3

what are the types of private sector organisations (3)

Answer 3

sole traders
partnerships
companies

Question 4

what are sole traders

Answer 4

one person that ownes and controls a business such as a corner shop

Question 5

what are partnerships

Answer 5

businesses that are owned by between 2-20 people, often found in professions

Question 6

what are companies

Answer 6

where shareholders own a business, they elect a board of directors which work on their behalf and run the company

Question 7

what are the aims of private sector businesses

Answer 7

survival
growth
social responsibility
profit maximisation

Question 8

what are the 3 types of public sector organisations

Answer 8

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

Question 9

what are the 3 types of economies

Answer 9

a market or free enterprise economy
a command or planned economy
a mixed economy

Question 10

what is a market economy

Answer 10

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

Question 11

what is a planned economy

Answer 11

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

Question 12

what is a mixed economy

Answer 12

an economy which relies both of public and private sector to provide goods and services

Question 13

how does the market decide what to produce in a mixed economy

Answer 13

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

Question 14

how do mixed economies decide how to produce

Answer 14

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

Question 15

how do mixed economes decide for whom to produce

Answer 15

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

Question 16

how do governments decide on the degree of mixing and what are the effects

Answer 16

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

Question 17

what are the reasons for market failure (5)

Answer 17

MELLF
Missing markets
externalities
lack of competition
lack of info
factor immobility

Question 18

what is market failure

Answer 18

when the market leads to inefficiencies, usually leading to gov intervention

Question 19

how can externalities cause market failure

Answer 19

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

Question 20

how can lack of competition cause market failure

Answer 20

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

Question 21

how can lack of info cause market failure

Answer 21

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

Question 22

what are merit goods

Answer 22

goods which are under provided by the private sector

Question 23

what are public goods

Answer 23

goods which are not likely provided by the private sectors and usually provided by the government, public sector

Question 24

how can missing markets cause market failure

Answer 24

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

Question 25

how can factor immobility cause market failure

Answer 25

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

Question 26

how can the government intervene to prevent market failure

Answer 26

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

Question 27

why is it impossible for private sector businesses to provide public goods

Answer 27

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

Question 28

what is a free rider

Answer 28

an individual who enjoys the benefits of a good but allows others to pay for it