Chapter 2 Flashcards
the income people receive in return for supplying factors of production
factor of payment
the structure of methods and pronciples that a society uses to produce and distribute goods and services
economic system
profit
the amount of money a business receives in excess of its expenses
a set of government programs that protect people who face unfavorable economic conditions
safety net
level of economic prosperity
standard of living
the process of bringing new methods, products, or ideas into use
innovation
traditional economy
an economic system that relies on habit, custom, or ritual to decide that three key economic questions
any arrangement that allows buyers and sellers to exchange things
market
the concentration of the productive efforts of individuals and businesses on a limited number of activities
specialization
free market economy
an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets
a person or gorup of people living in a single residence
household
an organization that uses resources to produce a product or service, which it then sells
firm
the arena of exchange in which firms purchase the factors of production from households
factor market
the arena of exchange in which households purchase goods and services from firms
product market
an individuals own personal gain
self-interest
the hope of reward or fear of penalty that encourages a person to behave in a certain way
incentive
the struggle among producers for the dollars of consumers
competition
a term coined by Adam Smith to describe the self-regulating nature of the marketplace
invisible hand
the power of consumers to decide what gets produced
consumer sovereignty
centrally planned economy
an economic system in which the government makes all decisions on the three key economic questions
command economy
another name for a centrally planned economy
socialism
a range of economic and political systems based on the belief that wealth should be distributed evenly throughout a society
communism
a political system in which the government owns and controls all resources and means of production and makes all economic decisions
describes a form of government that limits individual freedoms and requires strict obedience from its citizens
authoritarian
the doctrine that government generally should not intervene in the marketplace
laissez faire
private property
property that is owned by individuals or companies, not by the government or the people as a whole
a market- based economic system in which the government is involved to some extent
mixed economy
a period of change in which a nation moes from one economic system to another
economic transition
privatization
the process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace
an economic system characterized by private or corporate ownership of capital goods
free enterprise system
infrastructure
the basic facilities that are necessary for a society to grow
public property
property that is owned by the government or the people as a whole
3 decisions (key economic questions)
what and how much to produce?
who receives the goods and services
how the products should be
list and briefly explain the five basic goals and societal values that influence the three basic economic questions
economic efficiency - maximize production with the resources you have
economic freedom
economic security - safety net
economic equality - what is fair
advantages of the free market
efficiency
economic freedom
economic growth
