Chapter 2: Institutions and the Marketplace

Question 1

market

Answer 1

anyplace where buyers and sellers interact to trade goods, services, resources

Question 2

specilization

Answer 2

the practice of using available resources to produce a single good or service rather than multiple goods and services

Question 3

What do markets do?

Answer 3

create wealth by encouraging specialization and trade

Question 4

property right

Answer 4

the exclusive right to determine how a resource is used; use as you wish

Question 5

private property

Answer 5

property owned by individuals

Question 6

common property

Answer 6

property owned by a group (firms, of individuals)

Question 7

public property

Answer 7

property owned by the government

Question 8

rule of law

Answer 8

system where society enforces property rights, contracts, and other rules according to an established and uniform set of law and judicial system instead of arbitrary decisions

Question 9

rule of men

Answer 9

a system where the rules are enforced by the goodwill of the enforcer, such as a monarch or other ruling group

Question 10

rule of force

Answer 10

a system where the strong enforce the rules according to their whim, also known as “might makes right”

Question 11

competitive market

Answer 11

a market with many buyers and sellers, free entry and exit, and no externalities

Question 12

externality

Answer 12

the benefit enjoyed by or cost imposed on a 3rd party not directly involved in the production or consumption of a good or service

Question 13

market power

Answer 13

the ability to influence the price of a good, service, or resource by changing the quantity produced or purchased

Question 14

entrepreneur

Answer 14

a person who organizes resources to develop a new product or method of production and assumes the risk of bringing it to the market

Question 15

financial institution

Answer 15

a firm that provides financial services, such as accepting deposits and providing loans to its customers