Economics AS my cards

how are resources allocated in the market economy?

The price mechanism is used to allocate resources.

what are advantages of the free market system?

• the government can concentrate elsewhere like international diplomacy

• Firm innovation: profit maximization incentivizes firms to be innovative and cost-effective

• consumer welfare: firms should be cost-effective, resulting in lower prices

what are disadvantages of the market economic system?

• Under-consumption/production of Merit goods, Eg: Health and education

• over-production/consumption of De-merit goods, Eg: Alcohol and tobacco

• Lack of public good provision, Eg: police and defence is not provided at all

how are resources allocated in the planned economy?

resource allocation is taken by the govt or state.

what are advantages of the command economy?

• Decisions regard the interests of the whole society

• The state can decide which goods to produce and to whom they would be supplied

• price stability is very likely

• lower uneployment rates are likely

what are disadvantages of the command economy?

• Firm inefficiency, less incentives for firms to be innovative since profit maximisation is not focused on

• economic inefficiency, lack of competition leads to inefficiency and low productivity

how are resources allocated in the mixed economy?

resource allocation is taken by both the private and public sector

what are issues of transitioning economies?

• inflation

• unemployment, may arise from workers struggling to adapt to structural employment changes

• Fall in output, some industries perish when when market forces are introduced

what are determinants of demand?

• Income

• price of other goods

• tastes and preferences

• speculations

• population size

• distribution of income

what are determinants of supply?

• costs of production

• availability of resources

• climate

• technology

• government regulations

• taxes and subsidies

when is a good price elastic?

when PED > 1

when is a good price inelastic?

when PED < 1

When is a good unitary elastic?

when PED = 1

when is a good perfectly inelastic?

when PED = 0

when is a good perfectly elastic?

when PED = ∞