Unit 1.4 - Resource allocation in different economic systems

• Resource allocation


  The process of deciding how scarce resources are to be used to satisfy unlimited human wants
• Economic systems


  The way in which production is organised and choices are made in an economy
• 1. How important is the government in influencing economic development?

  2. Should all countries be a democracy?
• Sectors


  • Public
  • Private
• Government (public) vs private sector
• Scarcity


  Productive resources are scarce relative to human wants so we must decide:
• What to produce?


  • Based on consumer demand or on future expansion needs?
• Who to produce for?

  • Those who can pay, or those that need it?
• How to produce?


  • Labour intensive vs capital intensive?
• Economic systems


  • Market
  • Planned
  • Mixed

  
• Market economy


  Most decisions are taken through the market mechanism
• Planned economy


  Resources are state owned and allocated by a central body
• Mixed economy


  Both market forces and government are involved in resource allocation

  
• Free market economic system

  All decisions are taken by private sector organizations and individuals. There is little or no role for government or a public sector and therefore little or no taxation or public spending.
• Market economy


  1. Private sector producers

  2. Consumers

  3. Goods and services

  4. Money

  5. Production

  6. Exchange

  7. Consumption
• Planned economy


  Government ownership and control of some scarce resources
• A mixed economy therefore combines the advantages of a market economic system with government intervention in key industries:
• Government interventions in a mixed economy

  • Privatisation
  • Emerging economies
  • Asian tiger economy
• Price mechanism/market mechanism


  Who in an economy decides what goods and services to produce, how to produce them and who to produce them for, and how are these decisions are made?

  
• Economic systems


  • Market economy
  • Mixed economy
  • Planned economy

  
• Who decides in each economic system?

  • Market economy: Private sector firms and consumers

  Mixed economy: Private sector firms, consumers, and government

  Planned economy: Government
• How are decisions made in each economic system?

  • Market economy: The price mechanism

  Mixed economy: The price mechanism and government planning

  Planned economy: Government planning

  
• Examples of economic systems in the world

  • China
  • Cuba
  • North Korea

  Denmark

  • France
  • Italy
  • Sweden
  • UK

  Argentina

  • Mauritius
  • Nepal
  • Paraguay

  Bahamas

  • Singapore
  • USA
• Questions:


  • Which economic system benefits the poor the most?

  2. Which economic system benefits the rich the most?
• Exam style questions
• 1. Explain what is meant by resource allocation [2]

  2. Explain the difference between a mixed economy and a planned economy [4]

  3. Analyse the effect of the price mechanism in a market economy [6]