Questions to go over Flashcards
(16 cards)
Advantages of the market mechanism in a mixed economy
Decisions are made by individual consumers and individual producers who act in their own self interest
Resources are allocated by a price mechanism without need for government intervention
Disadvantages of the market mechanism in a mixed economy
Some products are under-provided and under-consumed while some are over-produced and over-consumed
Some products will not be provided
Advantages of government intervention in a mixed economy
Government intervention in resource allocation can take decisions in the national interest
The government could create a more equitable distribution of income
Disadvantages of government intervention in a mixed economy
Government control could lead to inefficient resource allocation
Lack of competition or profit motive could lead to products of lower quality
Advantages of a planned economy
Efficient resource allocation for societal goals
Reduction of inequality
Stability and control over the economy
Full employment
Avoidance of wasteful competition
Focus on long term sustainability
Disadvantages of a planned economy
Lack of consumer choice
Inefficiencies and lack of incentives
Bureaucratic inefficiencies
Limited individual freedom
Shortages and surpluses
Corruption and abuse of power
Lack of competition may lead to allocative inefficiency
Advantages of a mixed economy
Balance between efficiency and welfare
Private sector innovation
Government to correct market failure
Social safety net
Economic stability
Disadvantages of a mixed economy
Over reliance on government intervention
Potential for government failure
Higher taxes and government spending
Income inequality
Politician influence and lobbying
Assess whether a planned economic system should always switch to a mixed economy
Mixed economy may have the best features of a planned and market economy but this will depend on how mixed it actually is
Switch may be hard to make
Balancing market freedom with government intervention can lead to inefficiencies and persistent inequalities
Evaluation of XED
Oversimplifies the relationship between goods
Assumes ceteris paribus
Is limited to price changes
Is difficult to measure
Evaluation of YED
A simplification of consumer behaviour
Assumes ceteris paribus
Is difficult to measure
Doesn’t account for the redistribution of income
Changes over time
Assess whether producers are the only ones to benefit when an economy decides to allocate additional resources to investment
Reduces costs of production, increasing domestic and international competitiveness and profits
Taxes may have to rise to fund investment and will be international so domestic businesses don’t benefit
Long term wider choice and lower prices for consumers but short term there are fewer goods and higher prices
Government may see a long run increase in tax revenue but a short term increase in expenditure
Assess whether supply side policy is the most effective way to achieve long run economic growth
Needs growth of AD and AS
Supply side can increase AS and lead to an increase in AD since better training increases incomes and spending
Less likely to result in inflation, costly, long time lag
Less effective in directly raising AD
Fiscal is more likely to increase AD and is faster
May indirectly lead to a rise in AS if people are encouraged to enter the workforce
If AS does not increase may be inflationary
May reduce the amount available for government spending
Advantages of free trade
Efficient allocation of resources due to specialisation and comparative advantage
An opportunity to take advantage of different factor endowments
Competitive pressure to keep costs down, increase efficiency and lower prices for consumers
Higher output, economic of scale and increased choice and availability for consumers
Disadvantages of free trade
Overexploitation of scarce resources
Closure of domestic industries and problems of developing industries leading to unemployment particularly in a developing economy
Dumping and unfair competition
