BUSINESS ACTIVITY 3

MIXED MARKET AND MARKET ECONOMIES (UNIT 1.4.1)

WHAT IS AN ECONOMIC SYSTEM?

Market economic system

Planned economic system

Mixed economic system

ADVANTAGES OF A FREE MARKET ECONOMY

A variety of goods and services Businesses respond quickly Businesses will innovate There is no taxation

DISADVANTAGES OF A FREE MARKET ECONOMY Businesses will only produce goods and

services that earn a profit Businesses will only sell products to

consumers who can afford to pay most for them

Resources will only be employed if it is profitable to do so

Harmful goods may be produced if it is profitable to do so

Some producers and consumers may ignore the harmful effects of their decisions on others and the environment

Some firms may dominate the market supply of a particular product

THE MIXED ECONOMY

The government can: Provide services such as education Provide services such as street lighting Employ people who would otherwise be

unemployed Provide financial help to important

businesses Introduce laws to protect the consumer and

the environment Regulate or break-up monopolies

PROBLEMS CREATED BY GOVERNMENT POLICY

Disposable income is reduced due to taxation Increased costs to business of regulation Public sector organisations are often

inefficient

INTERNATIONAL TRADE (UNIT 1.4.2)

CONSUMER CHOICE AND OPPORTUNITIES FOR GROWTH

Consumer choice Increased competition Business growth Free trade (workforces and technologies

anywhere in the world)

ADVANTAGES OF INTERNATIONAL TRADE

Specialisation Consumers benefit from imported goods

otherwise not available to them Competition Economies of scale Best workforces

DISADVANTAGES OF INTERNATIONAL TRADE

Competition Movement to less well developed economies Global demand may be dominated by certain

developed/developing economies Social cost of transport pollution

BARRIERS TO FREE TRADE

Tariffs Subsidies Quotas Embargos

ARGUMENTS FOR TRADE BARRIERS

They help protect small businesses and new industries

They prevent dumping They prevent over-specialisation by

protecting a range of different industries

ARGUMENTS AGAINST TRADE BARRIERS

They restrict consumer choice and opportunities for new businesses and business growth

They protect inefficient domestic businesses with higher costs and often lower-quality products

Other countries will retaliate by introducing their own trade barriers

PROBLEMS ENTERING NEW MARKETS ABROAD (UNIT 1.4.3)

ENTERING OVERSEAS MARKETS

There may be language barriers Different cultures, customs and tastes will

need to be understood The business must comply with different

laws, regulations and taxes The business must manage exchange rate

risks There are increased risks of non-payment

OVERCOMING PROBLEMS ENTERING OVERSEAS MARKETS

A business can use local contacts A business can set up assembly or sales only

business units overseas It can enter into a joint venture with an

overseas business A business can merge with or takeover an

existing business

BUSINESS ACTIVITY 3