Unit 1: Types of economies

• Free-market economy


  Economy that lacks government intervention in the allocation of resources and distribution of goods
• Mixed economy


  Economy that blends traits of free and command economies; as individuals, firms, and governments own factors of production and distribute goods
• Command economy


  Economy in which all resources and distribution of goods are controlled by the state
• Key people in the types of economies

  Free: Fredrich Hayek Command: Karl Marx Blend: Adam Smith
• What are the advantages of free economies?

  Profit motivates people to work, greater variety of goods and services, better standards of living, and competition results in better quality of goods
• What are the disadvantages of free economies?

  Wealth gap, exploitation of workers, and resource depletion & environmental degradtion
• Advantages of command economies

  Social equality as everyone receives similar wages, less unemployment, exploitation of workers is avoided, and resources are directed towards urgent priorities
• Disadvantages of command economies

  Receiving the same wage disincentives people, lack of innovation due to no competition, access to higher standards of living are limited, and personal freedoms are restricted.
• What is the role of the state in a mixed economy?

  Taxation, distribution of income, and provision of essential goods and services
• Why are economic systems created?


  To solve the issue of scarcity.
• What questions should an economic system answer?

  What to produce? Who to produce it for? How to produce it?