markets

• Syllabus points


  • The concepts of economics and the distinction between microeconomics and macroeconomics
  • The concepts of opportunity cost
  • The economic problem
  • The economic decision-making process
  • The importance of economic models
  • The Production Possibility Frontier (PPF) model
  • The characteristics of a market economy
• Types of markets


  • Free market
  • Government intervention
• Basic economic questions


  • What/how much to produce
  • How to produce
  • For whom to produce
• Resource allocation and distribution of income/output

  The way in which markets (economies) are organized as answers to the basic economic questions
• Types of economies


  • Free market economy
  • Command economy
  • Mixed market
• Free market economy


  • Resources owned by private individuals or groups, and consumers and firms make economic decisions by responding to prices that are determined by markets
  • There is no government intervention in this market
• Command economy


  • Resources (especially land and capital) are owned by the government, which makes economic decisions by commands
  • Government intervention changes the allocation of resources(& distribution of output and income) from what markets would have achieved working on their own
• In the real world – there has never been an economy that is entirely a market or command economy
• Real world economies combine markets and commands in different ways
• Economies may lean more toward the command economy (as in planned economies of communist systems) or more toward the market economy (as in highly market oriented economies)
• In the last 40 years or so, there has been a trend for economies around the world to rely more and more on the market and less on command (neo-liberalism)
• The pandemic opposed this trend to a large extent