chapter 2 test 1/14 Flashcards
economic system
the way a society uses it’s scarce resources to satisfy it’s people’s unlimited wants
traditional economy
an economic system in which families,clans, or tribes make economic decisions based on customs and beliefs that have been handed down from generation to generation
command economy
the government decides what goods and services will be produced, how they will be produced, and how they will be distributed
market economy
based on individual choice, not government directives
centrally planned economy
a system in which the society’s leaders, usually members of the central government, make all economic decisions
socialism
an economic system in which the government owns some or all or the factors of production
communism
a more extreme form of socialism in which there is no private ownership of property and little or no political freedom
authoritarian
requires absolute obedience to authority
private property rights
the rights of individuals and groups to own property
market
any place or situation in which people buy or sell goods or services
laissez faire
a french phrase for “leave things alone”
capitalism
an economic system based on private ownership of the factors of production
voluntary exchange
a trade in which the parties involved anticipate that the benefits will out-weigh the cost
profit
a financial gain from a business transaction
competition
the effort of two or more people, acting independently, to get the business of others by offering the best deal to
consumer sovereignity
the idea that because consumers are free to purchase what they want and to refuse products they don’t want
specialization
a situation in which people concentrate their efforts in the areas in which they have an advantage
circular flow model
it visualizes how all interaction occur in a market economy
product market
market for goods and services
factor market
the market for the factors of production
what are the fundamentals of market economies?
- private property rights
- specialization
- consumer sovereignty
- competition
- voluntary exchange
- profit
- limited government involvement
what is the result of businesses selling goods and services to the product market?
they collect business revenue
what is the result of the factor market buying productive resources from businesses?
businesses give payments for resources
what is the result of households getting capital and entrepreneurs from the factor market?
households provide land and labor
