Chapter 2 - The Market System And Circular Flow Flashcards
Command system
An economic system in which most property resources are owned by the government and economic decisions are made by central government body
Economic system
A particular set of institutional arrangements and a coordinating mechanism for producing goods and services.
Market system
An economic system in which property resources are privately owned and markets and prices are used to direct and coordinate economic activities.
Capitalism
An economic system in which property resources are privately owned and markets and prices are used to direct and coordinate economic activities.
Private property
The right of private persons and firms to obtain, own, control, employee, dispose of, and bequeath land, capital, and other property.
Freedom of enterprise
The freedom of firms to obtain economic resources, to use these resources to produce products of the firms own choosing, and to sell their products in markets of their choice.
Freedom of choice
The freedom of owners of property resources to employ or dispose of them as they see fit, consumers to spend their incomes in a manner that they think is appropriate.
Self interest
That which each firm, property owner, worker, and consumer believe is best for itself.
Competition
The presence of the market of a large number of independent buyers and sellers competing with one another and the freedom of buyers and sellers to enter and leave the market.
Market
An institution or mechanism that brings together buyers and sellers a particular goods, services, or resources for the purpose of exchange.
Specialization
The use of the resources of an individual, firm, region, or any birdies one or a few goods and services.
Division of labor
Dividing the work required to produce a product into a number of different tasks that are performed by different workers.
Medium of exchange
Item sellers generally except and buyers general use to pay for a good or service.
Barter
The exchange of one good or service for another good or service.
Money
Any item that is generally acceptable to sellers in exchange for goods and services.
Consumer sovereignty
Determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy.
Dollar votes
The ‘votes’ that consumers and entrepreneurs cast for the production of consumer and capital goods, respectively, when they purchased them in product and resource markets.
Economic efficiency
Obtaining the socially optimal amount of goods and services using minimum necessary resources; entails both productive efficiency and allocated efficiency. 1) an outward shift in the production possibilities curve that results from an increase in fact her supplies or quality or an improvement in technology; 2) an increase in either real output GDP or in real output per capita.
Guiding function of prices
The ability of price changes to bring about changes in the quantities of products and resources demanded and supplied.
Creative destruction
The hypothesis that the creation of new products and production method simultaneously destroys the market power of firms that are wedded to existing products and older ways of doing business.
Invisible hand
The tendency of firms and resource suppliers seeking to further their own self interest in competitive markets to also promote the interests of society as a whole.
Circular flow diagram
Depiction of the flows of resources from households to firms and of products from firms to households. These flows are accompanied by reverse flows of money from firms to household and from households and firms.
Household
One or more persons occupying the housing unit, who by business goods and services in the product market using income derived from selling resources in the factor market.
Business
And economic entity that purchases factors of production and provides goods and services to the economy.
Sole proprietorship
An unincorporated firm owned and operated by one person.
Partnership
An unincorporated firm owned and operated by two or more people.
Corporation
A legal entity target by the federal or provincial government that operates as a distinct and separate body from individuals who own it.
Credit
And accounting item that increases the value of an asset such as the foreign money owned by the residents of the nation.
Product market
A market in which products are sold by firms and bought by households.
Factor market
A market in which household sell and firms by factors of production.
