the organisation of modern economies Flashcards
what is an economic system
a mechanism that deals with the manner in which countries organise their means of production and which sees to the production, distribution and consumption of goods and services.
define scarce
a situation that occurs when limited resources restrict the supply of a good relative to its demand
name the different types of economic systems
free market, planned economies, mixed economies and traditional economies.
where can the traditional economy be found
some parts of Asia,Africa and south america.
what is factor of production
the elements that are brought together in the production process to make production possible
what is the free market economy
a market structure which the forces of demand and supple determine what goods are produced and the price at which they are sold
what is the planned economy system
and economic system in which the government or some central authority owns the productive resources in a society and hence determines price, output and production.
what is a mixed economic system
and economic system that has both private sector and public sector and in which both the government and private citizens own the productive resources in the country
what is the traditional economic system
an economic system in which direct proportion dominates and few or no organised systems for trading exists
advantages of the free market economy
- the presence if intense competition brings out creativity an innovativeness, and keeps prices down.
- individuals enjoy the freedom to put their labour, income and natural resources ti the use that brings maximum profit.
- Waste is minimised since production is driven by consumers demand.
disadvantages of the free market economy
- Wealth and income are often centralised in the hands of those who own the factors of production, resulting in huge income inequalities among citizens in the country.
- Only those who have the means to purchase items are able to consume them. As a result, essential life-saving goods may be out of the reach of some consumers.
- Competition may be limited or completely absent in some industries as large firms either buy out smaller ones or prevent them from starting up.
- Firms can use advertising to create artificial demand or they can restrict supply to create scarcity and ultimately cause prices to increase.
- Firms often make profits at the expense of the environ-ment, since they are reluctant to increase their costs by following safe, environmentally friendly practices.
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where can planned economy be found
Cuba, China, and parts of Asia.
where can the free market economy be found
singapore, switzerland and finland
advantages of planned economic system
- The wealth of a country is more equally distributed.
- State provision of goods at low cost ensures that everyone is able to consume essential goods and not just those who can afford to buy them.
- Sometimes it is better if there is no excessive competition in an industry. This wasteful competition is unlikely to exist in a planned economic system.
disadvantages of planned economic systems
- There is a large and often inefficient or even corrupt government agency responsible for decision making and policy implementation.
- The government may not respond quickly enough to increased demand and this may result in shortages and rationing.
- Competition is discouraged, leading to inefficiency and a lack of creativity.
