Opportunity cost measures the cost of any choice in terms of the next best alternative forgone. For example, the opportunity cost of the government spending £10bn on the NHS, is decreased spending on other areas.

Free market economy - this is when all goods and services are allocated through the price mechanism. This encourages businesses to be resourceful and rations goods and services based on who can pay for them. There is a limited role for the government and they are reduced to only protecting property rights.

Planned/command economy - this is associated with a communist government. The government owns scarce resources and allocates these. They set production targets based on others wants and needs. Markets play no role in resource allocation.

Mixed economy - some resources are owned by the public sector and some are owned by the private sector The public (state) sector supplies public goods, merit goods and corrects market failure. Most economies are mixed.

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