Free market economy
Resources allocated by market forces.
Economic systems
Key definitions
Command economy
Resources allocated by government.
Mixed economy
Market allocation with government intervention where necessary.
Standards of living
Measured by material goods consumed.
Inequality
Differences in income and wealth between groups.
Invisible hand
Market mechanism guiding self-interest to allocate resources.
Allocative efficiency
When S=D at market equilibrium.
Bureaucracy
Administrative burden in command systems.
Profit motive
Incentive driving firms in free markets.
Samuelson's 3 questions
What, how and for whom — answered differently in each system.
Key concepts
Free markets: efficient production but risk inequality and environmental damage.
Command economies: equity aims but poor information and weak innovation.
UK is a mixed economy — intervention depends on political priorities and market failure.
Relevant tips
- Compare Cuba and Singapore style examples when evaluating systems in essays.