Chapter 2

Question 1

S1) Economic System

Answer 1

The structure of methods and principles that a society uses to produce and distribute goods and services.

Question 2

S1) Factor Payment

Answer 2

The income people receive in return for supplying factors of production.

Question 3

S1) Profit

Answer 3

The amount of money a business receives in excess of its expenses.

Question 4

S1) Safety net

Answer 4

A set of government programs that protect people who face unfavorable economic conditions.

Question 5

S1) Standard of Living

Answer 5

Level of economic Prosperity.

Question 6

S1) Innovation

Answer 6

The process of bringing new methods, products, ideas into use.

Question 7

S1) Traditional Economy

Answer 7

An economic system that relies on habit, custom, or ritual to decide the three key economic questions.

Question 8

S2) Market

Answer 8

Any arrangement that allows buyers and sellers to exchange things.

Question 9

S2) Specializations

Answer 9

The concentration of the productive efforts of individuals and businesses on a limited number of activities.

Question 10

S2) Free Market Economy

Answer 10

An economic system in which decisions on the three key economic questions are based on voluntary exchange in markets.

Question 11

S2) Household

Answer 11

A person or group of people living in a single residence.

Question 12

S2) Firm

Answer 12

An organizations that uses resources to produce a product or service, which it then sells.

Question 13

S2) Factor Market

Answer 13

The arena of exchange in which firms purchase the factors of production from households.

Question 14

S2) Product Market

Answer 14

The arena of exchange in which households purchase goods and services from firms.

Question 15

S2) Self-Interest

Answer 15

An individual’s own personal gain.

Question 16

S2) Incentive

Answer 16

The hope of reward or fear of penalty that encourages a person to behave in a certain way.

Question 17

S2) Competition

Answer 17

The struggle among producers for the dollars of consumers.

Question 18

S2) Invisible Hand

Answer 18

A term coined by Adam Smith to describe the self-regulating nature of the marketplace.

Question 19

S2) Consumer Sovereignty

Answer 19

The power of consumers to decide what gets produced.

Question 20

S3) Centrally Planned Economy

Answer 20

An economic system in which the government makes all decisions on the three key economic questions.

Question 21

S3) Command Economy

Answer 21

Another name for a centrally planned economy.

Question 22

S3) Socialism

Answer 22

A range of economic and political systems based on the belief that wealth should be distributed evenly throughout a society.

Question 23

S3) Communism

Answer 23

A political system in which the government owns and controls all resources and means of production and makes all economic decisions.

Question 24

S3) Authoritarian

Answer 24

Describes a form of government that limited individual freedoms and requires strict obedience from its citizens.

Question 25

S4) Laissez Faire

Answer 25

The doctrine that government generally should not intervene in the market place.

Question 26

S4) Private Property

Answer 26

Property that is owned by individuals or companies, not by the government or the people as a whole.

Question 27

S4) Mixed Economy

Answer 27

A market-based economic system in which the government is involved to some extent.

Question 28

S4) Economic Transition

Answer 28

A period of change in which a nation moves from one economic system to another

Question 29

S4) Privatization

Answer 29

The process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace.

Question 30

S4) Free Enterprise System

Answer 30

An economic system characterized by private or corporate ownership of capital goods.