chap 2

Question 1

invisible hand

Answer 1

• the “unseen” force which helps people make business decisions

Question 2

self interest & competiton

Answer 2

• people make a living by what they like to do & by what they do best. through this, they’ll meet the needs of others
• keeps quantity, quality, & price at “reasonable levels

Question 3

division of labor

Answer 3

• many people work together to make an item
• helps businesses reach an economy of scale

Question 4

expansion

Answer 4

as businesses keep making profit because of this, they expand&raquo_space; more jobs

Question 5

laissez-faire

Answer 5

the government shouldn’t interfere with the economy

Question 6

(Laissez-Faire con) government duties include:

Answer 6

1. provide defense
2. administer justice
3. build infrastructure (roads, public buildings, etc.)

Question 7

The Wealth of Nations (1776)

Answer 7

Adam Smith describes the characteristics of a market economy in his book

Question 8

command economy

Answer 8

• the gov answers the 3 economic questions
• these economies tend to create very little wealth
• typically run by dictators
• tend to focus on military production

Question 9

traditional economy

Answer 9

• very little change over long periods of time
• usually centered around an agricultural community
• parts of SE Asia, Africa, S. America, Amish areas

Question 10

absolute advantage

Answer 10

the ability to use the factors of production more efficiently than another nation (who is better at producing a certain product)