Economic Systems

Classifying economic systems (4)

 methods of classification vary

 classification by degree of government control

 other methods of classification

 the informal sector

The command economy

 features of a command economy

 planning: (3)

 consumption and investment

 matching of inputs and outputs

 distribution of output

Advantages of a command economy (theoretical) (4)

 high investment, high growth

 stable growth

 social goals pursued

 low unemployment

Problems of a command economy (4)

problems of gathering information

 expensive to administer

 inappropriate incentives

 shortages and surpluses

The free-market economy (3) (3)

 demand and supply decisions

 the price mechanism:

 shortages and surpluses

 equilibrium price

 response to changes in demand and supply

 the interdependence of markets

Advantages of a free-market economy (4)

 transmits information between buyers and sellers

 no need for costly bureaucracy

 incentives to be efficient

 competitive markets responsive to consumers

Problems of a free-market economy (6)

 competition may be limited: problem of market power  inequality

 problem of poor and/or asymmetric information

 may respond poorly to serious shocks, such as a pandemic

 the environment and other social goals may be ignored

 may encourage greed and selfishness

The mixed economy

types of government intervention:

 taxes, subsidies, benefits, direct provision, direct control, legislation