Economic systems and thinkers

• Free market 


  All recources are allocated by the market
• How does the free market allocate recources

  by the price mechanism
• What markets do the goverment get involved in

  Command economy and mixed economy
• What is the motive for production in a free market

  Profit
• Advantages of a free market

  Free markets are efficient and quick to respond to demand

  There will be greater economic growth in a free market

  There will be lower prices due to competition

  There is greater consumer choice due to competition
• Disadvantages of a free market

  External costs

  Lower provision of public goods

  Consumer and worker explotation (inequalities)

  Monopolies may form
• Command economy


  All recources are allocated by the government
• What does the government do in a command economy

  The government tell producers what to produce for consumers
• Advantages of a command economy

  There is less corruption

  A command economy maximises social welfare

  There is greater equality

  Market faliure can be corrected

  Monopolies can be stopped from forming
• Disadvantages of a command economy

  There is inefficiency as there is no profit motive

  There is a reduction in consumer choice

  There is a lack of creativity and incentives

  There will be excess supply/demand
• Mixed economy


  Recources are allocated by the price mechanism and the government
• How does the government intervine in the private sector

  The government taxes goods

  The government provides subsidies
• Mixed economy advantages

  Profit and welfare are both maximised

  Governemnt provision creates positive externalities

  There is greater consumer choice
• Mixed economy disadvantages

  There is less control of recource allocation for the government

  There are oppurtunity costs and trade-offs
• Adam smith 


  He belived that the price mechanism should be left to work and the government shoudn't get involved
• What did adam smith acknowledge about his theory

  The governemnt may have to get involved if there is market faliure
• Karl marx

  Marx hated the free market as the free market led to capitalism which would result in worker and consumer explotation. He thought command economys would result in a more fair society
• Friedrich Hayek

  Hayek argued that the allocation of recources by the government would not work as the government did not have sufficient amounts of information to do so