Ch 2

Question 1

Economic System

Answer 1

A particular set of institution arrangements and a coordinating mechanism - to respond to the economizing problem

Question 2

Command System

Answer 2

A method of organizing an economy in which property resource are publicly owned and government uses central economic planning to direct and coordinate economic activities; command economy; communism

Question 3

Market System

Answer 3

All the product and resource markets of a market economy and the relationship among them; a method that allows the prices determined in those markets to allocate the economy’s scarce resources and to communicate and coordinate the decisions made by consumers, firms, and resource suppliers

Question 4

Private Property

Answer 4

The right of private persons and firms to obtain, own , control, employ, dispense of, and bequeath land,capital, and other property

Question 5

Freedom of Enterprise

Answer 5

The freedom of firms to obtain economic resources, to use those resources to produce products of the firm’s own choosing, and to sell their products in markets of their choice

Question 6

Freedom of Choice

Answer 6

The freedom of owners of property resources to employ or dispose of them as they see fit, of workers to enter any line of work for which they are qualified, and of consumers to spend their incomes in a manner that they think is appropriate

Question 7

Self Interest

Answer 7

That which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain

Question 8

Competition

Answer 8

The presence in a market of independent buyers and sellers competing with one another along with the freedom of buyers and sellers to enter and leave the market

Question 9

Market

Answer 9

Any institution or mechanism that brings together buyers (Demanders) and sellers (suppliers) of a particular goods or service

Question 10

Specialization

Answer 10

The use of the resources of an individual, a firm, a region, or a nation to concentrate production on one of a small number of goods and services

Question 11

Division of labor

Answer 11

The separation of the work required to produce a product into a number of different tasks that are performed by different workers

Question 12

Medium of Exchange

Answer 12

Any item sellers generally accept and buyers generally use to pay for a good or service; money, a convenient means of exchanging goods and services without engaging in barter

Question 13

Barter

Answer 13

The exchange of one good or service for another good or service

Question 14

Money

Answer 14

Any item that is generally acceptable to sellers in exchange for goods or services

Question 15

Consumer Sovereignty

Answer 15

Determination by consumers of the types and quantities of goods and services that will be produces with the scarce resources of the economy ; consumers’ direction of production through their dollar votes

Question 16

Dollar Votes

Answer 16

The ‘votes’ that consumers and entrepreneurs cast for the production of consumer and capital goods, respectively, when they purchase those goods in product and resource markets

Question 17

Creative Destruction

Answer 17

The hypothesis that the creation of new products and production methods simultaneously destroys the market power of existing monopolies

Question 18

“Invisible Hand”

Answer 18

The tendency of firms and resources suppliers that seek to further their own self-interest in competitive markets to also promote the interests of society

Question 19

Circular Flow Diagram

Answer 19

An illustration showing the flow of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to households to firms.

Question 20

Households

Answer 20

Economic entities (of one or more persons occupying a housing unit) that provide resources to the economy and use the income recieved to purchase goods or services that satisfy economic wants

Question 21

Businesses

Answer 21

Economic entities (firms) that purchase resources and provide goods and services to the economy

Question 22

Sole Proprietorship

Answer 22

An unincorporated firm owned and operated by one person

Question 23

Partnership

Answer 23

An unincorporated firm owned and operated by two or more persons

Question 24

Corporation

Answer 24

A legal entity (“person”) chartered by a state or the Federal government that is distinct and seperate from the individuals who own it

Question 25

Resource Market

Answer 25

A market in which households sell and firms buy resources or the services of resources

Question 26

Product Market

Answer 26

A market in which products are sold by firms and bought by households