Ch3

Question 1

Market Economy is…

Answer 1

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

In a market economy, individuals follow their own self- interest

Question 2

private property rights

Answer 2

private property rights—the control a private individual or firm has over an asset.

for a market to exist, government must allocate and defend private property rights

Question 3

socialism is …

Answer 3

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

Question 4

capitalism is …

Answer 4

capitalism is 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 5

factor market

Answer 5

factor market - labor and other factors of production

Question 6

goods market

Answer 6

Goods market — Businesses produce goods and services and sell them to house-holds and government

Question 7

Institutions are…

Answer 7

Institutions are… the formal and informal rules that constrain human economic behavior

Question 8

Feudalism

Answer 8

Feudalism — an economic system in which traditions rule (8th-15th centuries)

If your parents were serfs, you’d be a serf.

Question 9

Mercantilism

Answer 9

Mercantilism — an Econ,in system in which government determines the what, how, and for whom decisions by doling out the rights to undertake certain economic activities (up to 1700s)

Question 10

Feudalism

Answer 10

Feudalism — an economic system in which traditions rule (8th-15th centuries)

If your parents were serfs, you’d be a serf.

Question 11

Mercantilism

Answer 11

Mercantilism — an Econ,in system in which government determines the what, how, and for whom decisions by doling out the rights to undertake certain economic activities (up to 1700s)

Question 12

Externality

Answer 12

The effect of a decision on 3rd parties, not taken into account by the decision maker

e.g. Pollution

Question 13

A public good

Answer 13

A good that if supplies to one person must be supplied to all

e.g. National defense

Question 14

A private good is…

Answer 14

A private good is one that can only be consumed by the individual

e.g. an apple

Question 15

business process

Answer 15

business process is a network of activities that generate value by transforming inputs into outputs