Types of market Flashcards
What is a free market
Private ownership of all economic resources.
4 Features of a Free Market
-Resources are allocated towards making what consumers want to buy.
-Very much supply and demand-driven
-Businesses gather info on what consumers want and least want to buy through price
levels and price changes
-Prices can be set freely without interventation from the government
How does free market work
In a free-market economy, the basic economic problem is solved by producers and consumers who decide What, How and for Whom to produce products and services.
How can people make profit with their investments in a free market?
They will only produce goods or services that people are willing to buy and at a price they are willing to pay.`
People who enjoy a kind of good or service are…
only those who are able and willing to pay for them
What is “Price Mechanism”?
When a firm finds a product sells very well, they can increase the price charged and know people will still be prepared to buy it. However, if the price of a product increases, this will act as a signal to other firms that there is more profit to be made from this product and that demand is high. the opposite is true for a price decrease. this is how market economies solve the problem of what, how and for whom to produce.
What is command economy?
Command economy is when industries are owned and managed by the government.
List five differences between Free market economy and Command economy tip: (Ownership, Incentives, Prices, Efficiency, Equality, Examples, Problem)
In a free market:
Firms are owned by private sectors
Profit motives act as an incentive for owners and managers
Price determined by supply and demand
Incentives for firms to be efficient and cut costs
Free market likely to lead to income and wealth inequality
In a Command economy :
Industries are managed by the government
Government give little incentive to be efficient and profitable
Prices are decided by the price controls
Government-owned firms have less incentives to be efficient
The government may provide a more equitable distribution of resources
What are features of a mixed economy?
A mixed economic system protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims.
