The Mixed Economy (Edexcel IGCSE Economics): Flashcards

In a mixed economy, income is redistributed through a welfare system that includes unemployment benefits, healthcare and pensions.

Around 25% of new firms fail in their first year, so many new firms focus on survival, switching to profit maximisation once established.

True.

Private sector firms seek to maximise profit, which can drive higher efficiency and productivity than the public sector.

An economic system is the way an economy is organised to allocate its scarce factors of production in order to solve the basic economic problem of scarcity.

Economic agents are the groups that make decisions within an economy, including consumers, producers, the government, and special interest groups.

A mixed economy is an economic system in which goods and services are produced by both the public and private sector, and the level of government intervention varies.

The three main economic systems are a free market system, a mixed economy, and a planned economy.

The three fundamental economic questions are what to produce, how to produce it, and who to produce it for.

A country's economic system is ultimately determined by how it answers the three fundamental economic questions.

In a market system, goods and services are produced by the private sector for those who can afford them.

In a planned system, production is organised to ensure everyone has a job, rather than to maximise profit.

True.

In a market system the private sector aims to profit maximise, keeping costs low by minimising wasted resources.

False.

An economy based mostly on a planned system has more public ownership, prioritising the public's best interests.

Producing goods using machinery rather than workers is known as capital-intensive production.

Because resources are limited in supply, decisions about what to produce carry an opportunity cost.

Market failure occurs when free market activity results in a less than optimum allocation of resources from the point of view of society.

A demerit good is a good that has harmful impacts on consumers or society, is often addictive, and is over-provided by the market.

A merit good is a good that is beneficial to society but under-consumed, because consumers do not fully recognise its private or external benefits.

An externality is an external cost or benefit imposed on a third party who is not involved in the economic transaction.

Factor immobility occurs when it is difficult for factors of production to move or switch between different uses or locations.

In a free market, the price mechanism determines the most efficient allocation of scarce resources.

Governments often subsidise merit goods to lower their price and increase the quantities consumed.

Governments often regulate demerit goods to raise their prices or limit the quantities consumed.

Monopoly power causes market failure because goods are purposely under-provided to raise prices and profits, reducing consumer choice.

False.

Merit goods are under-provided by a free market because consumers under-consume them.

True.

Governments generally tax products with negative externalities, or limit their output through regulation.

As well as inefficiency, market failure can involve inequality and environmental degradation.

The two main types of factor immobility of labour are geographical and occupational immobility.

A public good is a good that is beneficial to society but which private firms do not provide, because it is non-excludable and non-rivalrous and cannot generate a profit.

A private good is a good that firms can provide to generate profits because it is excludable and rivalrous.

Non-excludability refers to the inability of private firms to exclude certain customers from using their product, so the price mechanism cannot be used to exclude customers.

Non-rivalry refers to the inability of a product to be used up, so there is no competitive rivalry in consumption to drive up prices and generate profits.

The free rider problem occurs when people can access a good without paying for it, so paying customers stop paying and firms eventually cease to provide the good.

Examples of public goods include roads, parks, lighthouses, national defence and street lighting.

Firms exclude certain customers from buying private goods through the price mechanism, as some customers cannot afford to buy them.

Governments typically provide public goods, because private firms cannot make a profit from them and so leave them under-provided.

False.

The free rider problem leads to public goods being under-provided, as firms eventually cease to supply them.

True.

Non-rivalry means the good cannot be used up, so one person consuming it does not reduce the quantity available to others.

Private goods are rivalrous because they are limited in supply, so customers must compete for them.

The public sector is the part of the economy where the government provides goods and services, such as healthcare, education and infrastructure.

The private sector is the part of the economy where private firms provide goods and services, typically to generate profit.

Cuba and China are examples of countries with a large public sector.

The USA leans towards a free market economy, with a smaller public sector.

The size of the public sector can be measured by GDP per capita spending on the public sector and the number of employees per 1,000 of the population.

A large public sector gives the government control over key sectors, allowing it to regulate and reduce negative externalities such as pollution.

Free market economists argue against a larger public sector because, usually, the larger the public sector, the higher the level of taxes.

True.

Nordic countries allocate considerable government revenue to the public sector and have larger numbers of public sector employees.

False.

The USA and Japan have a smaller public sector than Norway, Germany or China.

True.

Data suggests many countries with a larger public sector enjoy a better quality of life, due to strong education and healthcare systems.

In China, state-owned enterprises are major employers, offering job security.

The UK and USA allocate less revenue towards the provision of merit and public goods.

Privatisation is the transfer of assets from the public sector (state) to the private sector, so that pricing and availability are determined by the free market.

Nationalisation is the transfer of assets from the private sector into public ownership, most often used for public goods and merit goods.

Privatisation raises revenue for the government from the sale of state-owned assets and reduces the overall level of public spending and the size of the state.

Privatisation can benefit consumers because competition may result in greater choice and lower prices.

Privatisation can cause job losses as private firms reduce costs to increase profits, as happened when BT made many workers redundant.

The UK government nationalised Northern Rock in 2008 because the bank was on the verge of collapse in the global financial crisis, and protecting the banking system was necessary.

Privatised water firms need regulation to ensure equitable access, as without it they may raise bills or neglect non-profitable parts of the network.

True.

Privatisation encourages new entrants; for example, smaller gas suppliers entered the British gas market after it was privatised.

True.

Nationalisation is most often used for public goods and merit goods, sometimes to ensure an organisation's survival.

False.

Government assets are often sold below their actual market value during privatisation.

British Airways, formerly owned by the UK government, was privatised in 1987.

Privatised, profit-maximising monopolies can restrict output to earn supernormal profits.