Economic Systems Overview
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Questions and Answers

What is a command economy and how does it differ from a free enterprise system?

A command economy is one where the government owns almost all factors of production and centrally controls economic activity, unlike a free enterprise system where factors are privately owned and decisions are made by individuals and firms.

Explain the role of government in a mixed economy.

In a mixed economy, the government provides essential services that private firms may not, regulates markets to ensure fair competition, and intervenes in certain markets through taxation and subsidies.

What is a demerit good and how does government intervention address its consumption?

A demerit good is one that can negatively affect consumers and society; government intervention, such as taxes or regulations, aims to discourage its consumption and minimize negative externalities.

How can the government ensure fair prices for consumers?

<p>The government can introduce price ceilings to prevent prices from rising too high, thereby making goods more affordable for consumers.</p> Signup and view all the answers

Describe the incentive structures in a free enterprise system.

<p>In a free enterprise system, individuals and firms are motivated by self-interest, with consumers aiming for utility maximization and firms striving for profit maximization.</p> Signup and view all the answers

Why does the government provide subsidies, such as for Electric Vehicles?

<p>The government provides subsidies to encourage the production and consumption of certain goods and services, promoting environmental sustainability and innovation.</p> Signup and view all the answers

What are the potential negative effects of unchecked capitalism?

<p>Unchecked capitalism can lead to exploitation, environmental degradation, and the formation of monopolies, prompting the need for government regulation.</p> Signup and view all the answers

Identify the methods by which the government can guarantee minimum prices for suppliers.

<p>The government can establish price floors to ensure suppliers receive a minimum price for their goods or services, protecting their financial viability.</p> Signup and view all the answers

What was the purpose of the sugar-sweetened drinks tax introduced in 2018?

<p>To reduce the consumption of sugary drinks and encourage healthier choices among consumers.</p> Signup and view all the answers

How does the Minimum Unit Pricing (MUP) legislation address excessive alcohol consumption?

<p>It links the price of alcoholic drinks to the number of units of alcohol, thus increasing prices for higher alcohol content drinks.</p> Signup and view all the answers

What are the implications of implementing a carbon tax on businesses?

<p>It raises operating costs for fossil fuel-dependent companies and encourages them to adopt cleaner technologies.</p> Signup and view all the answers

What was the outcome of the Plastic Bag Levy introduced in Ireland in 2002?

<p>It led to over a 90% reduction in plastic bag usage and promoted sustainable shopping habits.</p> Signup and view all the answers

How does the government use the revenue from the carbon tax?

<p>The revenue can be used to fund environmental projects or subsidize green technologies.</p> Signup and view all the answers

What potential economic shift can occur from a higher carbon tax?

<p>It can shift the economy toward greener industries and boost investments in renewable energy.</p> Signup and view all the answers

What does the 'bike to work' scheme incentivize in terms of economic activity?

<p>It incentivizes individuals to purchase bikes for commuting, reducing traffic congestion.</p> Signup and view all the answers

What are the negative externalities associated with low alcohol pricing?

<p>They include increased costs to the health and justice systems due to excessive alcohol consumption.</p> Signup and view all the answers

How does the government stabilize the economy using fiscal and monetary policies?

<p>By managing inflation, unemployment, and economic growth through targeted interventions.</p> Signup and view all the answers

What role do VAT and excise duties play in influencing consumer behavior?

<p>They discourage the consumption of harmful products like tobacco and alcohol.</p> Signup and view all the answers

Why was the reduction of the VAT rate in the hospitality sector significant?

<p>It allowed firms to decrease prices, thereby attracting more customers during challenging economic times.</p> Signup and view all the answers

What is the purpose of the Cap-and-Trade System regarding carbon emissions?

<p>To limit total carbon emissions and create financial incentives for companies to reduce pollution.</p> Signup and view all the answers

What social impact does the sugar-sweetened drinks tax aim to achieve?

<p>To lower obesity rates and improve public health, especially among children.</p> Signup and view all the answers

How might increasing the carbon tax affect consumers?

<p>It could lead to higher prices for energy and goods with high carbon footprints.</p> Signup and view all the answers

What can be a consequence of high corporation tax rates on foreign direct investment (FDI)?

<p>High taxes may deter foreign investors from entering the market.</p> Signup and view all the answers

What is the purpose of the Minimum Unit Pricing (MUP) for alcohol?

<p>The purpose of MUP is to reduce excessive drinking, particularly among heavy drinkers and young people, by making high-alcohol-content beverages less affordable.</p> Signup and view all the answers

How do price floors, like the one for alcohol, affect the supply and demand in a market?

<p>Price floors lead to excess supply because they set a price above the equilibrium, resulting in suppliers providing more units than consumers are willing to buy.</p> Signup and view all the answers

What happens to the market when a price ceiling is set below the equilibrium price?

<p>Setting a price ceiling below the equilibrium price creates excess demand, as more consumers want the product at the lower price, while suppliers provide less.</p> Signup and view all the answers

Why does MUP specifically target cheap, strong drinks?

<p>MUP targets cheap, strong drinks to deter excessive consumption that often leads to health issues among vulnerable groups.</p> Signup and view all the answers

What are the economic implications of implementing a price floor on alcohol?

<p>A price floor on alcohol raises the cost of inexpensive drinks, which can lead to increased healthcare costs initially, but may reduce overall social costs related to alcohol abuse over time.</p> Signup and view all the answers

What role does regulation play in maintaining market conditions?

<p>Regulation ensures consumers are protected from anti-competitive behavior, while also enforcing safety, hygiene standards, and environmental protection.</p> Signup and view all the answers

How does the Law of Demand affect the quantity demanded when a price ceiling is imposed?

<p>According to the Law of Demand, when a price ceiling is imposed and the price decreases, the quantity demanded increases.</p> Signup and view all the answers

What is a potential outcome of excessive supply due to a price floor?

<p>Excessive supply due to a price floor can lead to unsold stock, forcing the government to purchase or redistribute the surplus.</p> Signup and view all the answers

Describe the concept of 'equilibrium price' in a market.

<p>The equilibrium price is the price at which the quantity demanded by consumers equals the quantity supplied by producers, resulting in no surplus or shortage.</p> Signup and view all the answers

How is MUP expected to benefit public health over time?

<p>MUP is expected to benefit public health by discouraging excessive drinking, which can reduce alcohol-related health issues and lower healthcare costs.</p> Signup and view all the answers

Flashcards

Command Economy

An economic system where the government controls almost all factors of production and economic activity.

Free Enterprise

An economic system where private individuals/firms own almost all factors of production and make decisions.

Mixed Economy

A system combining elements of command and free enterprise, where the government plays a significant role.

Government Intervention

Actions taken by the government to influence economic activities.

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Demerit Goods

Goods that can have negative effects on consumers or society.

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Price Ceiling

Government-set maximum price for goods or services.

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Price Floor

Government-set minimum price for goods or services.

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Role of Gov. in Mixed Economy

Providing essential services, regulating markets, and intervening in specific markets.

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Price Floor (Alcohol)

A minimum price set by the government for alcohol; illegal to sell below this price.

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Public Health Improvement (Alcohol)

Reduce excessive drinking to improve public health.

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Targeting Problem Drinking

Aims to impact heavy drinkers, not moderate drinkers.

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Price Ceiling

Maximum price the government sets for something.

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Excess Demand

Quantity demanded is higher than quantity supplied.

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Price Floor Impact

Excess supply/unsold goods is a possible result.

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Equilibrium Price

Price where supply matches demand.

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Excess Supply

Surplus of goods, supply exceeds demand.

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Regulatory Body

An authority enforcing laws related to a specific sector.

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Consumer Exploitation

Harmful business practices against consumers.

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Economic Stabilisation

Government policies to control inflation, unemployment, and economic growth.

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Consumer and Worker Protection

Government rules ensuring worker and consumer safety, fairness, and rights.

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Redistributing Income

Reducing inequality through taxes and welfare programs.

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Sugar-sweetened drinks tax

Tax on sugary drinks to discourage consumption and improve health.

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Minimum Unit Pricing (MUP) of Alcohol

Pricing alcohol based on units to discourage excessive consumption.

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Carbon Tax

Tax on carbon-emitting fuels to reduce pollution.

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Cap-and-Trade System

Limiting carbon emissions, letting companies buy/sell permits.

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Plastic Bag Levy

Fee on plastic bags to reduce waste and litter.

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Low corporation tax

Low tax on corporations to attract foreign investment.

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High DIRT rates

High rates on dividends to encourage spending over saving.

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Bike to work scheme

Incentive to encourage cycling for commuting to reduce traffic.

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VAT and Excise Duty

Taxes on goods and services, including tobacco and alcohol, to discourage use.

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Residential Property Prices

Price of homes.

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Incentivize

Motivate or encourage.

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Regulations and Standards

Rules set by government for specific activities.

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Study Notes

Economic Systems

  • Command Economy (Centrally Planned):

    • State owns almost all factors of production
    • Maximum government control over economic activity
    • Centralized decision-making (state decides what to produce, allocates resources)
    • Individual work for "common good", selflessness prioritized

  • Free Enterprise (Capitalist):

    • Almost all factors of production are privately owned
    • Minimal government interference (e.g., public goods, national security, legislation)
    • Private individuals/firms decide production, resource allocation via price mechanism
    • Self-interest is key motivator (consumer utility maximization, firm profit maximization)

  • Mixed Economy (Role of Government):

    • Provides essential services (e.g., education, healthcare) not economically viable for private firms
    • State-owned firms provide essential, potentially loss-making, services (e.g., national train services)
    • Regulates markets to ensure fairness, consumer protection, and prevent monopolies (labor standards, environmental protection, business practices). This also stops negative aspects of unchecked capitalism (exploitation, environmental issues)
    • Intervenes in specific markets (e.g., taxes, subsidies)

Reasons for Government Intervention

  • Demerit Goods Discouragement: Discourage consumption/production to mitigate negative effects on consumers and third parties.
  • Fair Prices for Consumers: Price ceilings to prevent excessive pricing.
  • Fair Prices for Suppliers: Price floors to guarantee a minimum price.
  • Encouraging Specific Goods/Services: Provide incentives (e.g., subsidies).
  • Income Redistribution: Reduce inequality through taxes and welfare programs.
  • Economic Stabilization: Manage inflation, unemployment, and economic growth through fiscal and monetary policies.
  • Consumer and Worker Protection: Ensure safety, fairness, and rights through regulations and laws.

Taxation

  • Incentivize Economic Activity:
    • Low corporation tax attracts foreign direct investment (FDI).
    • High DIRT (Dividend/shareholder tax) incentivizes spending over saving.
    • "Bike to work" schemes encourage bicycle commuting, reducing traffic and transport pressure.
  • Influence Consumer Behavior:
    • VAT and excise duties discourage smoking and drinking.
    • Sugar-sweetened drinks taxes discourage consumption of unhealthy drinks.
    • Reduced VAT in hospitality incentivized customer spending by lowering costs.

Examples of Government Intervention

  • Sugary Drinks Tax: Introduced in 2018, aim to reduce consumption, lessen future health system burden, encourage healthier choices, incentivize healthier producers, fund better lifestyles.

  • Minimum Unit Pricing (MUP): Minimum price per unit of alcohol, enforced in off-license retailers and supermarkets to reduce excessive consumption, target problem drinkers, linked to reduction in healthcare and justice system costs rather than a tax.

  • Carbon Emissions:

    • Carbon tax: Tax on carbon emissions; encourages cleaner technologies.

    • Cap-and-Trade: Limits total emissions, permits traded; incentive to reduce emissions.

    • Regulations and standards: Set standards, requiring cleaner practices and technologies.

    • Implications: Reduces emissions, raises business costs, potentially impacts consumers (higher prices), shifts towards greener industries, creates green jobs, increases government revenue, raises competitiveness concerns.

  • Plastic Bag Levy: Reduced plastic bag use, promoted reusable bags, cleaner environment, revenue for environmental projects.

  • Minimum Unit Pricing (Alcohol): Sets minimum price per gram of alcohol in off-license retailers, aims to decrease alcohol consumption and associated harms by making cheap, strong drinks less affordable, targets problem drinkers, not all consumers.

Price Ceilings and Floors

  • Price Ceiling: A government-set price under the equilibrium price. Causes excess demand (higher demand than supply).
  • Price Floor: A government-set price above the equilibrium price. Causes excess supply (higher supply than demand).

Regulations and Agencies

  • Regulators enforce laws, punish breaches (e.g., prevents exploitation / anti-competitive behaviour - CCPC).
  • Ensure hygiene and food safety (e.g., FSAI).
  • Protect workplace safety (e.g., HSA).
  • Prevent environmental damage (e.g., EPA)

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Description

Explore the three main types of economic systems: Command Economy, Free Enterprise, and Mixed Economy. This quiz will test your understanding of how each system operates, the role of government, and the balance between private and public ownership. Discover which characteristics define each system and their implications for society.

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