- Created by: LShan261
- Created on: 07-04-15 20:32
Basic economic decision
- What should be produced in the economy?
- How should production be organised?
- For whom should production take place?
What. How. Whom.
W. H. W.
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There are Four main economic systems:
- A subsistence economy
- Free Market economy
- Command economy
- Mixed economies
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A Subsistence Economy
- Little specialisation and trade
- Low productivity = low incomes = poor standard of living
- Generally live in family groups and grow thier own crops - are mostly self-sufficient
- Little surplus production to export
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Free Market economy
- Economic decisions made through the free market mechanism
- What to produce is decided by profitability
- High demand = increased prices = increased profitability
- High prices and high profits indicates the producers to increase production
- The quantity supplied responds to the needs and wants expressed through price mechanism
- Consumer acts as the 'sovereign'.
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- All economic decisions are made by the government
- Requires economy planning by the State
- The price mechanism has no active role
- Is meant to benefit all the citizens of the country
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- A combination of free market and command economy
- Requires a private and public sector
- Majority of countries use a mixed economy
- In order for an economy to become mixed:
- Privatisation of state industries
- Encourage foreign investment
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Basic economic problem
- Infinite wants but limited resources.
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Central purpose of economic activity
- Provide goods and services to satisfy needs and wants.
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