Nautre of economic activity

• What does economic activity involve?


  Combining all the factors of production to create an output that people can consume
• What is the purpose of economic activity?


  To increase people's economic welfare and satisfy their needs and wants
• How many participants are there in the economy referred to as economic agents?


  Three
• Who are the three economic agents?


  Producers, consumers, and government
• What is the role of producers in the economy?


  Firms or people that make goods or provide services
• What do consumers do in the economy?


  They buy goods and services
• What is the role of governments in the economy?


  To set rules and also produce and consume goods and services
• How do economic agents affect resource allocation?


  They make decisions that influence how resources are allocated
• What decisions do producers make?


  What to make and how much to sell it for
• What decisions do consumers make?


  What they want to buy and how much they will pay for it
• What decisions do governments make in the economy?


  How much to intervene in the actions of producers and consumers
• What are the three economic incentives?


  What to produce, how to produce it, and who to produce it for
• What determines what to produce in an economy?

  Goods that firms can make a profit from
• How do firms decide how to produce goods?


  By producing in the most efficient way to maximize profits
• Who do firms produce goods for?


  Consumers who are willing to pay for those goods
• What is an economic system?


  A set of institutions that decides what, how, and for whom to produce
• What is the market mechanism?


  The process by which supply and demand interact to determine price and quantity
• What does the price mechanism refer to?


  How market prices adjust based on changes in supply and demand
• What is a market economy?


  An economic system where resources are allocated through supply and demand with minimal government intervention
• What is a command economy?


  An economic system where the government centrally controls resource allocation and production
• What are mixed economies?


  Economies that contain large command and large market economies
• How does the price mechanism function in a market economy?


  It allocates scarce resources based on supply and demand
• How are goods distributed in a command economy?


  Goods are distributed evenly
• What is the relationship between a market economy and capitalism?


  A market economy is a capitalist economy
• What is the relationship between a command economy and communism?


  A command economy is a communist economy
• When did the UK economy develop into a mixed economy?


  After the Second World War ended in 1945
• Why did the UK economy transition to a mixed economy?


  Industries were nationalized and taken into public ownership due to lower demand
• When did the Soviet Union economy develop into a mixed economy?


  After 1988, following the collapse of the Soviet Union
• Why did the Soviet Union transition to a mixed economy?


  The government no longer controlled resource allocation after communism was abolished
• What is the central purpose of economic activity?


  The production of goods and services to satisfy people's needs and wants
• What is a need?


  Something people must have to survive, such as water
• What is a want?


  Something people would like to have but which is not essential for survival
• How does satisfying people's needs and wants affect economic welfare?


  It improves economic welfare
• What are the pros and cons of a free market economy?


  Pros:

  • Efficiency: Best value products are in demand
  • Entrepreneurship: Rewards for good ideas encourage innovation
  • Choice: Increased consumer options

  
  

  Cons:

  • Inequalities: Income differences can upset communities
  • Non-profitable goods may not be produced
  • Monopolies: Successful businesses can abuse market power
• What are the pros and cons of a command economy?


  Pros:

  • Maximize welfare: Government can redistribute income fairly
  • Low unemployment: Government can provide jobs
  • Prevent monopolies: Market dominance can be controlled

  
  

  Cons:

  • Poor decision making: Lack of information can lead to mistakes
  • Restricted choice: Limited consumer options
  • Lack of risk-taking and efficiency: No incentive for innovation
• What is the main goal of a command economy?


  To maximize welfare and prevent inequality
• How does a command economy aim to achieve low unemployment?


  By providing everyone with a job and a salary
• How does a command economy prevent monopolies?


  By controlling market dominance through government intervention
• What are the drawbacks of government-owned firms in a command economy?


  They lack incentives to increase efficiency, take risks, or innovate
• What is the impact of poor decision-making in a command economy?


  It can lead to inefficient production and resource allocation