Theme 1.1 - Types of Economy Flashcards
What are the 4 approaches to managing an economy?
Free Market
Command
Mixed
Traditional
What does the free market believe?
Customer is King
Goods allocated based upon supply and demand
Minimal state intervention
What are the advantages of the free market?
As any product can be bought + sold, only highest quality is in demand
Firms have incentive to increase efficiency
Wide variety for consumer
Rewards good ideas, incentive for entrepreneurs
What are the disadvantages of the free market?
Huge income inequality (Rich get richer etc.)
No incentive to produce non-profitable goods
Monopolies lead to one sided market
Illegal goods in circulation due to focus on supply + demand
What does the command economy believe?
State has full control + allocates resources
State dictates what is produced
What are the advantages of the command economy?
Welfare maximised, minimal income inequality
Govt provide jobs, unemployment minimal
Monopolies are prevented
What are the disadvantages of the command economy?
Lack of information leads to slow + poor decision making
State control means restricted choice, firms told what to produce
No incentive to innovate or increase productivity as profit is guaranteed
What does the traditional economy believe?
New generation inherits economic position of its parents/grandparents
What are the private and public sectors composed of?
Private - Businesses
Public - Government
Which sector would not exist in a pure free market economy?
Public
Which sector would not exist in a pure command economy?
Private
Give 3 examples of government action within an economy
Alter law to force/stop action within a firm
Alter tax levels to incentivise/punish behaviour
Buying and selling goods (Public sector, NHS etc)
