1729215
Descripción
Mapa Mental por juliasutton, actualizado hace más de 1 año
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Creado por juliasutton
hace casi 12 años
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Free Market and Command Economies
- free market economy
- a market which resource allocation
is guided by market forces without
intervention of the state
- Characteristics
- Private ownership of resources
- market forces determine prices
- e.g. supply and demand
- e.g. supply and demand
- producers aim to maximise profits
- consumers aim to maximise satisfaction
- resources are allocated by price satisfaction
- Private ownership of resources
- Main actors
- Motivation
- profits
- personal satisfaction
- wages
- profits
- Private ownership
- factories, firms, land owned privately
- not by governement
- factories, firms, land owned privately
- Free enterprise
- can produce what you want
- can produce what you want
- Competition
- lots of economic activity
- lots of economic activity
- Decentralised
- Descions are not made by government
- Descions are not made by government
- Motivation
- Advantages
- Consumer sovereignty
- spending decisions by consumers
determine what is produces
- spending decisions by consumers
determine what is produces
- Flexibility
- free market system esponds quickly to changes in consumer wants
- free market system esponds quickly to changes in consumer wants
- No officials are needed to allocate resources
- Profit motive
- provides an incentive for firms to rake riskes
- provides an incentive for firms to rake riskes
- Competition and profit motive
- help promote efficient
allocation of resources
- help promote efficient
allocation of resources
- Increased choice
- for consumers compared to command economies
- for consumers compared to command economies
- Economic and political freedom
- For consumers and producers to own resources
- For consumers and producers to own resources
- Consumer sovereignty
- Disadvantages
- inequality
- Widened wealth gap
- those with resources become richer
- those without become poorer
- those without become poorer
- Widened wealth gap
- Trade cycles
- Free market economies
suffer instability
- booms and slumps
- booms and slumps
- Free market economies
suffer instability
- Imperfect information
- consumers may be unable to
make rational choices
- if they have inadequate information
or if there is asymmetric info
- if they have inadequate information
or if there is asymmetric info
- consumers may be unable to
make rational choices
- Monopolies
- Danger that one firm will become
sole supplier of a product
- and exploit consumers by changing prices
higher than the free market equilibrium
- and exploit consumers by changing prices
higher than the free market equilibrium
- Danger that one firm will become
sole supplier of a product
- Externalities
- the costs and benefits which
are not taken into account
when goods are produced and
consumers
- the costs and benefits which
are not taken into account
when goods are produced and
consumers
- No government regulation
- lots of criminal activity
- lots of de-merit goods
- e.g cigarettes
- e.g cigarettes
- lots of criminal activity
- inequality
- a market which resource allocation
is guided by market forces without
intervention of the state
- command/planned economy
- e.g
- North Korea
- Cuba
- North Korea
- a market where
resources are allocated by
the government
- Government own key
sections of the economy
- Highly regulated markets
- e.g
- Mixed economies
- Most countries fall here
- a combination of a free
market and a command
economy
- overcomes problems of free
market economy or a command
economy
- Most countries fall here
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