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Economics IGCSEPDF 40
118 pagesrevision 46932
PDF 40
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Features:
Disadvantages:
Market Economic System
merit goods*
price mechanism.
producing the most-demanded goods
using the cheapest yet efficient combination of resources
producing for people who are willing and able to pay for
goods
Advantages:
wide variety of quality goods and services
• Only profitable goods and services are produced. Public goods* and some
which there is no demand may not be produced, which is a drawback andaffectsthe
Definition : An economic system where resources are mainly owned and controlled by private
individuals and firms (the private sector).
Resource Allocation : Resource allocation is determined by the price mechanism (the forces
of demand and supply).
Government’s Role : Government intervention is minimal or non-existent.
Key Aim Firms aim to maximize profit, while consumers aim to maximize satisfaction (utility)
• All resources are owned and allocated by private individuals.
• Government refrains from regulating markets. It instead tries to create very business-friendly
environments and any interventionis mostly limited to protecting private property. Thedemand
andsupplyfixes the price of products. This is called
•Whattoproduce is solved by
forwhich peoplespend
alot,astheironly motive is togenerate a high profit.
•Howtoproduce is solved by
–
capitalorlabour- in order to maximise profits.
•Forwhomtoproduceis solvedby
atahigh price.
for
•A
will beproduced asdifferent firms willcompete
tosatisfy consumerwants andmake profits.Quality is ensuredto make sure that consumers
buyfrom them. There is consumer sovereignty.
•Firms will respond quickly to consumer changes in demand. When there is a change in
demand, they will quickly allocate resources to satisfying that demand, so as to maintain profits.
•High efficiency will exist. Since producers want to maximise profits, they will use resources
veryefficiently (producing more with less resources).
•Since there is hardly any government intervention (in the form of regulations, extra fees and
finesetc. for example), firms will find it easy and inexpensive to start and run businesses.