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22 Cards in this Set
- Front
- Back
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Def of economics system |
This means by which society allocated scarce resources to satisfy unlimited wants |
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Def of market system |
This is a system where the forces of the market through price mechanics determines how resources are allocated. |
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Def of command economy |
This is a system which is majorly controlled by the government through a central planning board |
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Def of a mixed economy |
This is a combination of both market and planned economy, where both the public and private sector determine how resources are allocated |
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What’s the function of an economic system |
Economic systems are established in any society or economy to solve fundamental economic problems of scarcity of resources against unlimited wants. They do this by solving the following economic question: |
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What to produce meaning |
Since wants are unlimited and resources are not enough to satisfy all the what’s, every economy must decide what goods to produce and in what quantity. Eg consumer and capital goods |
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How to produce |
This involves the combination of factors of production to produce goods and services. The method used by the economic system should be more efficient and ensure the max utilisation of economic resources Eg market system, the private sector will use method which are cost effective to ensure max profit is achieve. Many private sectors, however, focuses rather in the private cost than social cost |
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Whom to produce and eg |
This is how goods that have been produced and distributed in economy reach final users Market system , the distribution will be through price mechanism where prices will determine who will get what and what quantity. In this case, only those who have the ability to pay for the product will be able to consume. The main problem is that it may lead to unequal distribution Planned economy, the government will ensure the society is in egualitarium in terms of Access to income and wealth. This can be done through redistribution of income. For eg, unemployment benefits |
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Def of planned economy |
This is an economy in which production, investment, prices and incomes are determined centrally by the government. In theory there is no private sector. However, in reality, even in command economies there are some elements of private sectors. Even though they don’t have a greater importance in making economic decisions. Eg North Korea |
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Adv of planned |
1) equal distribution of income and wealth. When economic decisions are made by the government through a central planning mode, the decisions of resources will be more equal. For eg a government can Redistribute income through unemployment benefits and pensions to ensure that people with low incomes are able to afford basic needs |
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Adv of planned |
1) equal distribution of income and wealth. When economic decisions are made by the government through a central planning mode, the decisions of resources will be more equal. For eg a government can Redistribute income through unemployment benefits and pensions to ensure that people with low incomes are able to afford basic needs. Or explain progressive tax 2) government encourages more production of merit goods. These are goods that are more beneficial to individuals in the society and have positive externalities. Such as fschols. Government introduces subsidies to reduce the cost of production and make the prices of these goods more affordable 3) government controls production of demerit goods. These ads good which are harmful to indivual and they have negative externalities. Such as cigarettes. Gov introduces high tax 4) government produced public goods. These are goods which are non rivalry and non excludable and cannot be produces in a free market. Eg nations defence. Government directory produced them because theses are important social goods that are important to improve welfare of the society 5) government controls prices of goods which help reduces inflat |
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Disadvantages of planned economy |
1) government controls competition. This can lead to government monopoly which may not be beneficial to the cosiest because lack of competition , leads to inefficient use of resources, poor quality of goods, lack of motivation, high prices of goods and less variety of goods. 2) government decision making is bureaucratic . This is makes it impossible to quickly reposed to demand of consumers campers to market system, where prices sectors will quickly supply products that are highly demanded 3) no consumer sovereignty . All decisions are made my few individuals chosen by the government, they may reduce consumer welfare. 4) government may not consider individuals interest but produce based on the whole society. It may be a problems as it may lead to wastage of recites when some of these goods aren’t used 5) may firma operating in the public sector are less motivated to become innovative as they are not profit driven compared to those in the private sectors. The aim of the public sector is to prove social services, not earning profit |
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Def of market economy |
This is an economic system in which the decision regarding investment, production and distribution are guided by price signals created by the forces of demand |
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Def of market economy |
This is an economic system in which the decision regarding investment, production and distribution are guided by price signals created by the forces of demand |
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Adv of market economy |
1) resources are allocated through market forces and the operation of price mechanisms. There is therefore no need for the the government intervenga and the state can concentrate on areas such a 2) sovereignty of individuals and firms. This si because there is little or no intervention in the economy which neanche private sectors to make their own decisions on what to produce, how to proddice 3) indivuals interest are taken into account during production c this is because produced of firms will 4) a market can quickly respond to demand to consumers which can improve the welfare on individuals in the society 5) market competi. In a market there is a free enterprise, which means that i can start their own business |
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Disadvantages of market system |
1) in a free market, there is no proper of competition among firms. This is because there is no government intervention. This can lead to monopoly, where firs 2) lack of production of public goods. This makes them have a problem of free riding. With the market, indivualal aim at making profit, but with public goods, profits can’t be obtained 3) overproducing of Demerit goods, these goods when produces or consumed have external costs to third parties, making them have a higher social cost than social benefits. In a free market, individuals don’t take into account the external costs so this lead to over production. At the same time consumers lack full information about external costs 4) underproduction of merit goods. This is because they lack full information of the social venuta. When consumers or produce, they produce external benefits m. Individuals in a free market underconsume then m because they don’t consider external beneysds, 5) unequal distribution of income and wealth, price mechanism where Indivuskd eho have a high purchasing power will accumulate more wealth than people w low purchasing poer |
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Def of mixed econ |
This is a system that contributes planned and market system in the economic decision that invoke public an private sectors. This is the most realistic. System practised in the world nc |
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Def of mixed econ |
This is a system that contributes planned and market system in the economic decision that invoke public an private sectors. This is the most realistic. System practised in the world nc |
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How does mixed economy is |
1) mer |
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Issues faced by transitional economies |
1) One issue our country may face during transition is inflation. In the planned economy, the government has one important role of keeping the price stable. But as it moves to market economy there is a removal of price controls. This means that some of the prices are determined by the demand and supply. This may create more price instability and to create uncertainty for investors. This is because of the fluctuation of prices which may discourage them to rest. This may lead to a fall and economy growth. 2) another issue faced by transition economies is unemployment. This problem arises as in the planned economy the public sector employed more employees. Oh stop with the enter of newly privatised firms, employees aimed at making profit. By doing so labour costs were cut to improve efficiency of firms. This is because firms will not in ploidy as many people as in the public sector and firms may become more capital intensive to improve productivity. This has led to unemployment call mum which as a result may need to form in the GDP. 3) inequality. This is the on fair distribution of income and wealth. As this central planning is reduced the gap between the rich and the poor is increased. With inequality increasing intrapreneurs and trader exploit their positions in the commodities. While others suffer from unemployment and Rise inflation 4) Fall in output. This is because in the planned economy, with government provides subsidies to infant industries. Saturdays are Venetia supporting given by the government to firms. I’ll do a country as it transitions to a market economy new industries me easily fail due to lack of government support |
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Example of a transitional economy |
Cuba in the last dew years had transition to a market economy stimulated by diplomatic talks with the United States |
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Definition of a transition economy |
This is a system which obliges the process of moving from a planned economy to a market economy |
