Chapter 2 Flashcards
Economic systems
What are the conditions necessary for a market to exist ?
1) There must be at least one potential buyer and one potential seller of the good or service
2) The seller must have something to sell
3) The buyer must have the means with which to purchase it
4) An exchange ratio- the market price- must be determined
5) The agreement must be guaranteed by law or by tradition
What is tradition
When the same goods are produced and distributed in the same way by each successive generation
What is a market ?
Any contact or communication between potential buyers and potential sellers of a good or service
What is an economic system ?
A pattern of organization which is aimed at solving the three central questions
What are market prices ?
Signals or indices of scarcity which indicate to consumers what they have to sacrifice to obtain the goods or services concerned
What are property rights ?
The right to possess, use or dispose tangible and intangible assets as well as the right to all or part of the income generated by those assets
What is a coordinating mechanism ?
A means of providing and transmitting information so as to coordinate the economic activities of the great number of participants in an economy
What is a free-market economy ?
An economy where all decisions are made by individual households and firms with no government intervention
What is a barter system ?
A system in which goods and services are directly exchanged for other goods and services
What is privatization ?
When economists and politicians are in favor of selling assets to the private sector
