1.2

• What is the purpose of economic activity ?

  To satisfy human wants and needs by producing goods and services using scarce resources
• what are the key characteristic of economic activity?

  • scarcity of resources
  • choices must be made
  • opportunity cost arises
  • resource allocation is necessary
• what is a need?

  something that is necessary for human survival such as food, clothing, warmth and shelter
• what is a want?

  something that is desirable but not necessary for human survival
• what is the economic problem?

  the conflict between limited resources and unlimited wants - leading to the need for choice
• what is meant be resource allocation?

  it refers to how scare resources are distributed between competing uses in order to meet the most needs and wants
• economic welfare definition

  the economic wellbeing of an individual, a group within society, or an economy
• economic system definition

  the set of institutions within which a community decides what, how and for whom to produce
• what is a good?

  a tangible product
• what is a service?

  a non-tangible product
• how does scarcity influence economic choices?

  since resources are limited, individuals and societies must make choices about how to use them, leading to opportunity costs
• what are the main economic agents?

  • consumers
  • firms
  • government
• how does economic activity relate to living standards?

  most efficient and effective economic activity can lead to higher output, employment and living standards
• what is a market economy?

  An economy where resource allocation is determined by the price mechanism - supply and demand decide what, how and for whom to produce
• what are the key features of a market economy?

  • private ownership of resources
  • profit motive
  • limited government intervention
  • decisions made through markets
• what are the advantages of a market economy?

  • efficiency from competition
  • consumer sovereignty
  • innovation encourages
  • resources follow demand
• what are the disadvantages of a market economy?

  • inequality
  • under-provision of public goods (e.g street lighting)
  • market failure
  • short-term focus
• what is a command (planned) economy?

  an economy where the government makes all decisions about what to produce, how to produce and for whom
• what are the features of a command economy?

  • public ownership of resources
  • central planning by the state
  • no profit motive
  • rationing instead of prices
• what are the advantage of a command economy?

  • reduced inequality
  • Provision of essential goods
  • Focus on long-term goals
  • Lower unemployment
• what are the disadvantages of a command economy?

  • inefficiency and waste
  • lack of innovation
  • no consumer choice
  • poor incentive to work hard
• what is a mixed economy?

  an economy that combines market forces with government intervention. most economies today are mixed
• what are features of a mixed economy?

  • both private and public sectors
  • government provides public goods and corrects market failure
  • price mechanism still plays a role
• what are advantages of a mixed economy?

  • balances efficient with fairness
  • government can step in during crises
  • provides essential goods/services
• what are disadvantages of a mixed economy?

  • risk of too much government interference
  • potential inefficiencies in public sector
  • conflicting objectives
• examples of each type of economy?

  • market: USA (mor market-led)
  • command: North Korea, former USSR
  • mixed: UK, France, Germany