Chapter 2 Study Guide

Question 1

The purpose of government in a command economy is to _____

Answer 1

Make Major Economic Decisions

Question 2

An example of a market economy is the _____

Answer 2

The United States

Question 3

Economic and social goals include economic _____, economic _____, and price _____

Answer 3

Freedom; Security; Stability

Question 4

The group of people who determine the products that a free enterprise economy produces are called _____

Answer 4

Consumers

Question 5

The United States can best be described as having a _____

Answer 5

Modified Private Enterprise System

Question 6

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 _____

Answer 6

Change direction; Wants of consumers; Few incentives to work hard

Question 7

A market economy does not provide for everyone’s _____

Answer 7

Basic needs

Question 8

The minimum wage is an example of a federal law that supports _____

Answer 8

Economic Equity

Question 9

The concept of voluntary exchange means people _____ and _____ engage in market transactions

Answer 9

Willingly & Freely

Question 10

The government’s role in a mixed economy is that it is the _____ charged with preserving competition

Answer 10

Regulator

Question 11

The way in which a society provides for the wants and needs of its people determines the type of _____ it has

Answer 11

Economic System

Question 12

In a traditional economy, people’s roles are determined by the _____ of their elders and ancestors

Answer 12

Customs

Question 13

In the former Soviet Union’s command economy, _____ made the major economic decisions

Answer 13

The Government

Question 14

One strength of a market economy is the high degree of consumer _____

Answer 14

Satisfaction

Question 15

One disadvantage of a _____ economy is the high degree of uncertainty that businesses and workers face as the result of change

Answer 15

Market

Question 16

A rise in the general level of prices is called _____

Answer 16

Inflation

Question 17

Economic _____ is an economic goal that is based on a sense of fairness

Answer 17

Equity

Question 18

Economic _____ is necessary to meet the needs of a growing population by providing more goods and services

Answer 18

Growth

Question 19

Social Security is a federal program that addresses the goal of economic _____

Answer 19

Security

Question 20

Political elections are one method of resolving conflicts among economic _____

Answer 20

Goals

Question 21

When buyers and sellers make a _____, both parties are better off

Answer 21

Voluntary Exchange

Question 22

People and companies make most of the WHAT, HOW, and FOR WHOM decisions in a _____

Answer 22

Market Economy

Question 23

In a free enterprise system, people who risk their savings to gain wealth are doing it because of the _____

Answer 23

Profit Motive

Question 24

Capitalism benefits consumers because _____ keeps prices low

Answer 24

Competition

Question 25

In a _____, a central authority makes most of the WHAT, HOW, or FOR WHOM decisions

Answer 25

Command Economy

Question 26

In the United States, the customer’s control of the market is called _____

Answer 26

Consumer Sovereignty

Question 27

When the rate of _____ rises, people generally pay more for most products

Answer 27

Inflation

Question 28

Entrepreneurs and other private citizens, rather than the government, own the factors of production in a market economy based on _____

Answer 28

Capitalism

Question 29

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

Answer 29

Fixed Income

Question 30

Our economic system is called a _____ because people generally carry on their economic affairs freely, but are subject to some government regulation

Answer 30

Modified Private Enterprise Economy

Question 31

Federal program of disability and retirement benefits that covers most working people is _____

Answer 31

Social Security

Question 32

_____ is the organized way in which a society provides for the wants and needs of its people

Answer 32

Economic System

Question 33

_____ is the driving force that encourages people and organizations to improve their material well-being

Answer 33

Profit Motive

Question 34

_____ is income that does not increase even if prices go up

Answer 34

Fixed Income

Question 35

_____ is the market economy in which private citizens own the factors of production

Answer 35

Capitalism

Question 36

_____ is an economy in which a central authority makes most of the WHAT, HOW, and FOR WHOM decisions

Answer 36

Command Economy

Question 37

_____ is an economic system in which people carry on their economic affairs freely, but are subject to some government intervention

Answer 37

Mixed Economy

Question 38

_____ is the extent to which individuals or organizations are better off at the end of an economic exchange than before the exchange

Answer 38

Profit

Question 39

_____ is the act of buyers and sellers freely and willingly engaging in market transactions

Answer 39

Voluntary Exchange

Question 40

_____ Rights privilege that entitles people to their own possessions

Answer 40

Private Property

Question 41

Discuss inflation as it affects one of the following: labor, consumers, or government spending.

Answer 41

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.

Question 42

Why is the entrepreneur so important in the free enterprise economy?

Answer 42

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.

Question 43

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

Answer 43

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.

Question 44

How do traditional economies discourage new ideas for improving the economic well-being of the people

Answer 44

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.

Question 45

List and explain four characteristics of a free enterprise economy.

Answer 45

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