mixed economy
a mis of both the public and private sector in one economy
free market
The vast majority of goods and services are provided by the private sector.
Supply and demand largely determines how goods are allocated.
Only key services such as a legal and monetary system will be provided by the government.
command/planned economy
Relies entirely on the public sector to control factors of production and produce goods and services.
market failure
Where markets lead to inefficiency
sources of market failure
externalities, imperfect competition, public goods, merit and demerit goods, information failure
externalities
occur when there are transactions which do not recognise the full social costs or benefit of an economic activity
public goods
if left to the free market they fail to exist.
Non rivalrous (doesn't deprive other from using it if one is already in use)
Non excludable (doesn't restrict other from consuming if another uses it)
non rejectable
example of public goods
public education, police force
private sector
Individuals or groups of individuals who set up businesses to supply goods and services to anyone who wants to buy them.
Public sector
A range of organisations and government departments that provide services that often would be neglected by the private sector. Example: healthcare, education, rubbish collection.
production possibility frontier/curve
A line which shows the different combinations of two goods an economy can produce if all resources are used up.
privatisation
transfer of public assets, operations or activities to a private enterprise