2.2 Test Flashcards
__________ is the main characteristic of a free market economy
Economic freedom
Any arrangement that allows buyers and sellers to exchange things
Market
Market allow us to exchange things we _______ for things we _____
Have
Want
Markets eliminate the needs for one person to be _________
Self sufficient
The concentration of the productive efforts of individuals and businesses on a limited number of activities
Specialization
Specialization leads to efficient use of ________, ________, ________
Capital
Labor
Land
________ allows people to do their work more efficiently by learning only a few tasks rather than learning many
Specialization
________ also benefits businesses by allowing them to by focusing on a specific product or service which allow them to use capital and labor more efficiently
Specialization
Free market economy answers the three economic questions
What gets made
How it’s made
Who consumes the goods and services
___________ and __________ make their own decisions as to what they will buy and sell
Individuals
Businesses
Individuals and privately owned businesses own the ___________
Factors of production
The participants in a free market economy are _________ and _______
Households
Firms
A person or group of people living in a single residence
Household
And organization that uses resources to produce a product or service which it then sells
Firms
We can represent exchanges that take place in a free market economy in a diagram called
Circular flow model
The arena of exchange in which firms purchase the factors or production
Factor market
The arena of exchange in which households purchase goods and services from firms
Product market
Adam Smith published
The Wealth of Nations
The reward or fear of penalty that encourages people to act in a certain way
Incentive
The struggle among producers for the dollars of consumers
Competition
Based on money
Monetary
Based on prestige and personal satisfaction
Non-Monetary
_________ and __________ work together to regulate the market
Self interest
Competition
Without central planning or direction
The invisible hand
