Chapter 2 - The Market System And Circular Flow

Question 0

Command system

Answer 0

An economic system in which most property resources are owned by the government and economic decisions are made by central government body

Question 1

Economic system

Answer 1

A particular set of institutional arrangements and a coordinating mechanism for producing goods and services.

Question 2

Market system

Answer 2

An economic system in which property resources are privately owned and markets and prices are used to direct and coordinate economic activities.

Question 3

Capitalism

Answer 3

An economic system in which property resources are privately owned and markets and prices are used to direct and coordinate economic activities.

Question 4

Private property

Answer 4

The right of private persons and firms to obtain, own, control, employee, dispose of, and bequeath land, capital, and other property.

Question 5

Freedom of enterprise

Answer 5

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.

Question 6

Freedom of choice

Answer 6

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.

Question 7

Self interest

Answer 7

That which each firm, property owner, worker, and consumer believe is best for itself.

Question 8

Competition

Answer 8

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.

Question 9

Market

Answer 9

An institution or mechanism that brings together buyers and sellers a particular goods, services, or resources for the purpose of exchange.

Question 10

Specialization

Answer 10

The use of the resources of an individual, firm, region, or any birdies one or a few goods and services.

Question 11

Division of labor

Answer 11

Dividing the work required to produce a product into a number of different tasks that are performed by different workers.

Question 12

Medium of exchange

Answer 12

Item sellers generally except and buyers general use to pay for a good or service.

Question 13

Barter

Answer 13

The exchange of one good or service for another good or service.

Question 14

Money

Answer 14

Any item that is generally acceptable to sellers in exchange for goods and services.

Question 15

Consumer sovereignty

Answer 15

Determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy.

Question 16

Dollar votes

Answer 16

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.

Question 17

Economic efficiency

Answer 17

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.

Question 18

Guiding function of prices

Answer 18

The ability of price changes to bring about changes in the quantities of products and resources demanded and supplied.

Question 19

Creative destruction

Answer 19

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.

Question 20

Invisible hand

Answer 20

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.

Question 21

Circular flow diagram

Answer 21

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.

Question 22

Household

Answer 22

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.

Question 23

Business

Answer 23

And economic entity that purchases factors of production and provides goods and services to the economy.

Question 24

Sole proprietorship

Answer 24

An unincorporated firm owned and operated by one person.

Question 25

Partnership

Answer 25

An unincorporated firm owned and operated by two or more people.

Question 26

Corporation

Answer 26

A legal entity target by the federal or provincial government that operates as a distinct and separate body from individuals who own it.

Question 27

Credit

Answer 27

And accounting item that increases the value of an asset such as the foreign money owned by the residents of the nation.

Question 28

Product market

Answer 28

A market in which products are sold by firms and bought by households.

Question 29

Factor market

Answer 29

A market in which household sell and firms by factors of production.