Theme 1: Introduction to markets and market failure In this theme, students will consider how markets work, looking at how supply and demand interact to allocate resources in local, national and international markets. They will learn how to apply supply and demand analysis to real-world situations and be able to offer explanations of consumer behaviour. This will involve looking at both how consumers act in a rational way to maximise utility and how firms maximise profit, but also why consumers may not behave rationally. 1.1 Nature of economics Subject content 1.1.6 Free market economies, mixed economy and command economy What students need to learn: a) The distinction between free market, mixed and command economies: reference to Adam Smith, Friedrich Hayek and Karl Marx b) The advantages and disadvantages of a free market economy and a command economy c) The role of the state in a mixed economy

Who are the economic actors? Economic Systems  ’An economic system is best described as a network of organisations used by a society to resolve the basic problem of what, how much, how and for whom to produce.’ Who are the economic actors? Individuals Groups Government

How are resources allocated? The market mechanism Allocates resources through bringing together buyers and sellers who agree on a price for the product or resource being sold. Planning Allocates resources through administrative decisions e.g. the government and NHS

Free market economy

Jot down some problems that the UK may face in a completely free market economy? Where the government has no intervention.

ADVANTAGE OR DISADVANTAGE OF THE FREE MARKET ECONOMY PRICES SHOULD BE LOWER ADVANTAGE DISADVANTAGE

ADVANTAGE OR DISADVANTAGE OF THE FREE MARKET ECONOMY SOME BUSINESSES MAY MONOPOLISE A MARKET ADVANTAGE DISADVANTAGE

ADVANTAGE OR DISADVANTAGE OF THE FREE MARKET ECONOMY CONSUMERS MAY NOT BE ABLE TO AFFORD VITAL PRODUCTS ADVANTAGE DISADVANTAGE

ADVANTAGE OR DISADVANTAGE OF THE FREE MARKET ECONOMY QUALITY SHOULD BE HIGH DUE TO COMPETITION ADVANTAGE DISADVANTAGE

Command Economies allocation of scarce resources by government, or an agency appointed by the government.

North Korea

Mixed economies http://youtu.be/KOCxJRwasSo This involves a combination of market forces and central planning, called mixed economies

What type of economy does the UK have? Why? Explain...

APPLICATION/ANALYSIS (C/B) APPLICATION/ANALYSIS (C/B) Government's view of the economy could be summed up in a few short phrases If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidise it. – Ronald Reagan KNOWLWDGE (C) APPLICATION/ANALYSIS (C/B) APPLICATION/ANALYSIS (C/B) PUT YOUR THINKING HATS ON… KNOWLEDGE (C) AO4: EVALUATION (A/A*) EVALUATION (A/A*)

Evaluation of different types of economy Choice Economic growth Quality & innovation Distribution of income & wealth Efficiency Risk Political freedom