Chapter 2 Study Guide Flashcards
The purpose of government in a command economy is to _____
Make Major Economic Decisions
An example of a market economy is the _____
The United States
Economic and social goals include economic _____, economic _____, and price _____
Freedom; Security; Stability
The group of people who determine the products that a free enterprise economy produces are called _____
Consumers
The United States can best be described as having a _____
Modified Private Enterprise System
The characteristics of a command economy include: it can _____ drastically in a brief period of time, it is not designed to meet the _____, and it provides workers with _____
Change direction; Wants of consumers; Few incentives to work hard
A market economy does not provide for everyone’s _____
Basic needs
The minimum wage is an example of a federal law that supports _____
Economic Equity
The concept of voluntary exchange means people _____ and _____ engage in market transactions
Willingly & Freely
The government’s role in a mixed economy is that it is the _____ charged with preserving competition
Regulator
The way in which a society provides for the wants and needs of its people determines the type of _____ it has
Economic System
In a traditional economy, people’s roles are determined by the _____ of their elders and ancestors
Customs
In the former Soviet Union’s command economy, _____ made the major economic decisions
The Government
One strength of a market economy is the high degree of consumer _____
Satisfaction
One disadvantage of a _____ economy is the high degree of uncertainty that businesses and workers face as the result of change
Market
A rise in the general level of prices is called _____
Inflation
Economic _____ is an economic goal that is based on a sense of fairness
Equity
Economic _____ is necessary to meet the needs of a growing population by providing more goods and services
Growth
Social Security is a federal program that addresses the goal of economic _____
Security
Political elections are one method of resolving conflicts among economic _____
Goals
When buyers and sellers make a _____, both parties are better off
Voluntary Exchange
People and companies make most of the WHAT, HOW, and FOR WHOM decisions in a _____
Market Economy
In a free enterprise system, people who risk their savings to gain wealth are doing it because of the _____
Profit Motive
Capitalism benefits consumers because _____ keeps prices low
Competition
In a _____, a central authority makes most of the WHAT, HOW, or FOR WHOM decisions
Command Economy
In the United States, the customer’s control of the market is called _____
Consumer Sovereignty
When the rate of _____ rises, people generally pay more for most products
Inflation
Entrepreneurs and other private citizens, rather than the government, own the factors of production in a market economy based on _____
Capitalism
People who are living on a _____ find that it is more difficult to pay bills and plan for the future when prices keep going up
Fixed Income
Our economic system is called a _____ because people generally carry on their economic affairs freely, but are subject to some government regulation
Modified Private Enterprise Economy
Federal program of disability and retirement benefits that covers most working people is _____
Social Security
_____ is the organized way in which a society provides for the wants and needs of its people
Economic System
_____ is the driving force that encourages people and organizations to improve their material well-being
Profit Motive
_____ is income that does not increase even if prices go up
Fixed Income
_____ is the market economy in which private citizens own the factors of production
Capitalism
_____ is an economy in which a central authority makes most of the WHAT, HOW, and FOR WHOM decisions
Command Economy
_____ is an economic system in which people carry on their economic affairs freely, but are subject to some government intervention
Mixed Economy
_____ is the extent to which individuals or organizations are better off at the end of an economic exchange than before the exchange
Profit
_____ is the act of buyers and sellers freely and willingly engaging in market transactions
Voluntary Exchange
_____ Rights privilege that entitles people to their own possessions
Private Property
Discuss inflation as it affects one of the following: labor, consumers, or government spending.
Inflation affects labor by causing a business to reduce its workforce and reducing the effective spending power of workers salaries, Limiting a consumer’s consumption habits, or Result in cuts of government spending.
Why is the entrepreneur so important in the free enterprise economy?
Entrepreneurs introduce new ideas about products, manufacturing, and services. They provide consumers with the products they want, at the prices they want to pay. They create competition with existing businesses that helps to reduce costs and improve the quality of the goods. They provide jobs for workers.
Compare a command economy to a market economy by listing a strength and weakness of each. State how each type of economy satisfies the wants and needs of individuals
The strength of a command economy is that it can change drastically in a short period of time. Its weakness is that it is not designed to meet the wants and needs of individuals. In a command economy a central planning committee decides on how to best satisfy the needs of individuals. A strength of a market economy is that it can adjust to change over time. Its weakness is that it does not provide for everyone’s basic needs. A market economy satisfies the needs and wants of individuals by offering products that the consumer wants.
How do traditional economies discourage new ideas for improving the economic well-being of the people
There is no mechanism in a traditional economy that provides incentives for people to try out new ideas. People succeed by accepting and fulfilling the established roles of society. Therefore, those that try to do something new will be at a disadvantage. For example, a hunter who wants to sell his extra meat instead of sharing it freely will not be accepted by other group members. the hunter may go hungry the next time they fail a hunt because others may refuse to share food with them.
List and explain four characteristics of a free enterprise economy.
Economic Freedom- People are free to choose their jobs, and businesses are free to hire the best people and to produce the goods and services they choose
Voluntary Exchange- Buyers and sellers freely and willingly engage in market transactions
Private Property- People have the right and privilege to control their possessions as they wish
Profit Motive- people are free to risk their savings or any part of their wealth in a business venture
Competition- Sellers struggle among themselves to attract customers
