Ch. 3: Economic Institutions

Question 1

business

Answer 1

Private producing units in our society

Question 2

capitalism

Answer 2

An economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists.

Question 3

consumer sovereignty

Answer 3

The consumer’s wishes determine what’s produced.

Question 4

corporation

Answer 4

Businesses that are treated as a person, and are legally owned by their stockholders, who are not liable for the actions of the corporate “person”.

Question 5

demerit good or activity

Answer 5

Goods or activities that government believes are bad for people even though they choose to use the goods or engage in the activities.

Question 6

entrepreneurship

Answer 6

The ability to organize and get something done.

Question 7

externality

Answer 7

The effect of a decision on a third party not taken into account by the decision maker.

Question 8

global corporation

Answer 8

Corporations with substantial operations on both the production and sales side in more than one country.

Question 9

household

Answer 9

Groups of individuals living together and making joint decisions.

Question 10

government failure

Answer 10

Situations in which the government intervenes and makes things worse.

Question 11

institutions

Answer 11

The formal and informal rules that constrain human economic behavior.

Question 12

macroeconomic externality

Answer 12

Externalities that affect the levels of unemployment, inflation, or growth in the economy as a whole.

Question 13

market economy

Answer 13

An economic system based on private property and the market in which, in principle, individuals decide how, what, and for whom to produce.

Question 14

market failure

Answer 14

Situations in which the market does not lead to a desired result.

Question 15

merit good or activity

Answer 15

Goods and activities that government believes are good for you even though you may not choose to engage in the activities or to consume the goods.

Question 16

partnership

Answer 16

Businesses with two or more owners.

Question 17

private good

Answer 17

A good that, when consumed by one individual, cannot be consumed by another individual.

Question 18

private property rights

Answer 18

The control a private individual or firm has over an asset.

Question 19

profit

Answer 19

What’s left over from total revenues after all the appropriate costs have been subtracted.

Question 20

public good

Answer 20

A good that if supplied to one person must be supplied to all and whose consumption by one individual does not prevent its consumption by another individual.

Question 21

socialism

Answer 21

An economic system based on individuals’ goodwill toward others, not on their own self-interest, and which, in principle, society decides what, how and for whom to produce.

Question 22

sole proprietorships

Answer 22

Businesses that have only one owner