Ch4 Resource allocation in economic systems

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What is a market system/mechanism?

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A market system/mechanism is where resource allocation decisions are taken by individual producers and consumers with no government intervention. Prices are determined by demand and supply.

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What is a market economy?

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A market economy is an economic system where most decisions are taken through the market system/mechanism. The USA is an example of a market economy.

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What is a planned economy?

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A planned economy is an economic system where resources are state-owned and allocated by a central body. North Korea is an example of this type of economy.

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What is a mixed economy?

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A mixed economy is an economic system where both market forces and government are involved in resource allocation decisions. The degree of state intervention and role of the free market is likely to change over time. Pakistan is an example of a mixed economy.

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What is the key difference between planned, mixed, and market economies?

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The key difference is the respective roles of government and the market system.

Planned economies have extensive government control over decision-making.

In market economies, decision-making is carried out solely by market forces.

In mixed economies, there tends to be a balance in the respective roles of government and market forces.

Front

How do the roles of the private and public sectors vary in mixed economies?

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The roles of the private sector and public sector are variable in mixed economies. There has been an increasing emphasis on the private sector relative to the public sector. For example, in combating the effects of the COVID-19 pandemic, many mixed economies have temporarily extended the role of the public sector relative to the private sector.

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What is an emerging economy?

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An emerging economy is one that is becoming more involved in international markets. Brazil is a typical example.