Ch3 - Mixed Economy

Question 0

Who answers the three economic questions in a Mixed Economy?

Answer 0

The govt AND the market. Govt plays minor role in production and strong role in distribution.

Question 1

What are the 3 questions of economics?

Answer 1

1. What to produce?
2. How to produce?
3. For whom to produce for?

Question 2

Adam Smith coined “The Invisible Hand” in 1776 to describe what?

Answer 2

If the economic guidance is left to the people and their own benefit, they will work harder.

Question 3

The free enterprise system is motivated by what?

Answer 3

Self-interest.

Question 4

The “invisible hand” is a metaphor for what?

Answer 4

Profit motive

Question 5

Explain price mechanism.

Answer 5

When consumer demand increases the price increases and signals producers to produce more.

Question 6

What is “competition”?

Answer 6

An industry with many firms.

Question 7

Describe the “Circular Flow”.

Answer 7

People’s resources. Labor
⬇ ⬆ ⬇ ⬆
corporations money. Wages

Question 8

The three levels of govt - fed, state, local - provide what roles in the economy?

Answer 8

Tax collection, provide public services, issue regulations.

Question 9

Who provides the infrastructure for a market economy to function efficiently?

Answer 9

The govt.

Question 10

What happens when resources are not allocated efficiently?

Answer 10

Market failure

Question 11

What are the 3 classes of market failure?

Answer 11

1. Externalities
2. Environmental Pollution
3. Lack of public goods and services

Question 12

What is an external cost?

Answer 12

When production or consumption of goods or services inflicts a cost on a third party without compensation. (i.e pollution from driving)

Question 13

What is an external benefit?

Answer 13

When a benefit derived from production or consumption of a good or service is enjoyed by a third party. (i.e. beautification increases property value)

Question 14

What are the 2 types of measures to lower pollution levels?

Answer 14

1. Command and control measures (demanded)

2. Incentive based regulations (incentivized)

Question 15

Why not privatize public goods and services?

Answer 15

Companies unable to make a profit.

Question 16

Define “public goods”.

Answer 16

Something whose consumption by one person doesn’t prevent consumption by others. They are non rivalrous, and non excludable (Natl def, police, public schools)

Question 17

What is “capital”?

Answer 17

Primarily Plant and equipment. It’s past savings accumulated for future production.

Question 18

What are the 4 great economic systems?

Answer 18

Capitalism, communism, fascism, socialism.

Question 19

Characteristics of Capitalism…

Answer 19

Private ownership of production.
Profit motive.
Minimal govt role.
Planning performed by the market.

Question 20

Characteristics of Communism…

Answer 20

Central planning.
State owned production and distro.
Huge govt role.

Question 21

Characteristics of Fascism…

Answer 21

Merges state and corporate power.
Anticommunist.
Centralized.
State planning with corporate owned production.
Usu. militarized.

Question 22

Characteristics of Socialism…

Answer 22

Govt ownership if some production.
Substantial govt planning.
Large redistribution of income - heavy taxation for security and guaranteed essential needs.