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1.1.6 Free market economies, mixed economy and command economy Flashcards

(12 cards)

1
Q

What are the three economic questions?

A

1) What to produce?
2) How to produce?
3) Whom to produce for?

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2
Q

Features of the command/planned economy (3)

A
  • the government owns all the factors of production (resources)
  • relies entirely on the public sector to choose, produce and distribute goods
  • everyone has a job
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3
Q

Advantages of the command/planned economy (4)

A
  • society is more equal (maximising social welfare)
  • prevention of monopolies
  • provision of public goods
  • no unemployment
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4
Q

Disadvantages of the command/planned economy (4)

A
  • less/no competition
  • very bureaucratic
  • inefficient (allocation of resources)
  • no choice/innovation for consumers
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5
Q

Features of the free market economy (4)

A
  • limited role for the government
  • competition in the economy
  • free trade
  • individual ownership
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6
Q

Advantages of the free market economy (4)

A
  • more choice for consumers (creativity/innovation)
  • more efficient
  • the market allocates resources according to demand (equilibrium)
  • competition
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7
Q

Disadvantages of the free market economy (6)

A
  • unemployment
  • unstable working conditions
  • failure to produce certain goods and services (necessities)
  • harmful/wasteful goods are more likely to be produced (externalities)
  • inequality/wealth gap
  • monopolies/profit maximisation by firms
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8
Q

What is the mixed economy?

A

An economy where both the government and private firms provide goods and services

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9
Q

What is the role of the government in a mixed economy? (5)

A

Key industries:
- education
- healthcare/welfare
- infrastructure
- defense
- subsidies

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10
Q

What economic system did Adam Smith believe in?

A

Free market economy. He believed that:
- resources were most efficiently allocated due to people acting in their own self-interest
- businesses aimed to maximise profit and consumers utility
- the market would allocate the demand/supply by itself via the invisible hand (price mechanism/market forces)

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11
Q

What economic system did Karl Marx believe in?

A

Command/planned economy. He believed that:
- free market economies led to the exploitation of workers as businesses maximise profit
- competition would lead to businesses closing down and monopolies to form

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12
Q

What economic system did Friedrich Hayek believe in?

A

Free market economy. He believed that:
- the market allocates resources more efficiently than the government
- however, government intervention was necessary for the provision of public goods

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