ch.5 Flashcards
market signals
a sign used by consumers and producers to determine how much of a good to buy or sell at a given price and time
nondurable good
a good that has a life expectancy of less than three years
durable good
a good that has a life expectancy of at least three years
black market
an illegal, underground system for the exchange of goods, developed to avoid governmental regulations
private sector
that part of an economy controlled by private individuals, businesses, and organizations
public sector
that part of an economy controlled by national, state, and local governments
profit motive
the desire to work to improve one’s economic situation
depreciation
the diminishing value of the goods that is caused by wear and time
profit
the excess of the total revenue paid by buyers for goods over the seller’s total expense of producing goods
opportunity costs
the value of the best alternative that is forgone when a different alternative is taken
EX of market signals
A grocery store manager can look at a computerized inventory to see what goods are profitable to him and which ones aren’t. He will order more of the goods that sell well and less of what doesn’t sell well.
traditional economic systems
are based heavily on tradition causing the society’s wants to rarely change and for there to not be much need for anyone to make important economic decisions. Production technology scarcely changes, and these societies are more prone to suffering from natural disasters.
totalitarian governments
set up systems of economic planning. For example, China and the former Soviet Union’s “Five- Year Plans”. This type of planning results in people finding alternative, illegal systems to exchange goods without governmental regulation. Commonly called black markets
totalitarian
possessing absolute, compelling power
The difference between free market economies and command economies
is how much of the economy is run by the private sector and how much is controlled by the public sector.
free market economy
The interaction of demand and supply determines what shall be produced and in what quantity
The distribution of goods is decided by consumers. People spend their money to buy what they want.
Prices are efficiently determined through equilibrium between supply and demand.
command economy
A central authority determines how much of every good will be produced
The central authority determines either directly or indirectly what goods will be made available and to whom.
Prices are fixed by the central authority. This control frequently results in surpluses and shortages of goods.
To an accountant, a business’s profit is
its total revenue minus the amount of money spent and the cost of depreciation.
The profit motive keeps
the free market operating
total expense includes
opportunity costs
wage of management
the cost of hiring managers to run a business; a cost of labor that small-business owners often fail to account for
some businesses____ while most_____
make profits; merely get back their cost of doing business year to year.
some business owners build equity-
the total value of a business minus any liabilities
all business operate because of
profit motive
If profit motive were forbidden and the market economy didn’t exist
some production of goods would still occur.
