Types of Economies

Function of an economy
resolve the basic economic problem
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How to make decisions
Have to make these decisions: What is to be produced? How is it to be produced? For whom it is to be produced?
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Economic system
complex network of individuals/ organisation and institutions, which allocate resources. Done with social systems such as local neighbourhood and legal systems e.g. EEU legal systems
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consumers and workers – may own FoP = supply for production process
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Firms, trade unions, political parties, families and charities – some groups that might exist in an economic system
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: One key role of government = exercise power. Influences the relationships between individual and groups for instance through the passing of laws
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The Market Mechanism
Allocates resource through bringing together buyers and sellers who agree on a price for the product or resource being sold
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Allocates resources through administrative decisions. Occurs within families when they decided who gets what. Firms are also planned economies = managers decided how to allocate resources
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National level planning
allocate resource through planning e.g. the Budget from the Chancellor
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Free Market Economies
Majority of resources are allocated through markets rather than government and planning E.g. Hong Kong and the US = great proportion of resource allocated by markets rather than economies such as Sweden and Germany Planning mechanism allocate resour
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Healthcare and Benefits
Healthcare provided by the private sector In theory no welfare benefit system
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Mixed Economies
More resources are allocated through government planning 2 key areas, which distinguish, free market and mixed economies are welfare benefits and healthcare Mixed economies – more redistribution of income through welfare benefits e.g. state pensions
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administered and financed by the state
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Command Economies
Most resources = allocated by the state and the market mechanism only play a small part Largest planned economy = China
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Compare the US and former Soviet Union = clear individuals have more choice in free market economies Planning = creates uniform products
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In Market economies
people have choices about which jobs to apply for
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Planned economies
tends to be much more direction with worker being allocated jobs Citizens = far less income after tax in planned economies than in free market economies Choice depends on income, wealth and employment
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Free Market
Free market = strong incentives built into the system to innovate and produce high quality goods. Companies = fail to do both = driven out of business by efficient firms Assumes that consumer/buyers have power to make free choice Many market = domin
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Many market = dominated by a few large producers which manipulate the market through advertising and other forms of marketing = exploit the consumer
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Efficiency - planned
Planned economies like the Soviet Union = inefficient Problem = workers and manager had little incentive to work efficiently – work to targets do not strive for more
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Market led economies
= better = leads to competition Competition can e limited = large firms dominate markets = they are mini- planned economies – often struggle to maintain efficient production
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In terms of Economic Growth
The more market orientated an economy = higher growth Markets provide diversity whereas Planned economies are known for falling behind on economic growth Both economies grow at similar rate over the LT
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Distrubition of income and wealth
Distribution of income and wealth: Free market economies = higher levels of inequality that mixed/planned economies = resources produced by gov – distributed more equally than free market Higher income earner and wealth owners = large tax bill
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Free market economies tend to expose their citizens more than mixed/planned economies Well off can afford to spend their way out of problems Planned = ‘cradle to rave’ = bundle of services and benefits provide by gov for citizens
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All planned economies in 20th/21st century = curbed political freedom = enforce control
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Free and mixed economies
Both free market and mixed economies in the rich industrialised work = associated with political freedom Free market economies are growing however are moving to more of market allocation of resources
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Card 2


How to make decisions


Have to make these decisions: What is to be produced? How is it to be produced? For whom it is to be produced?

Card 3


Economic system


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