Chapter 20 Vocabulary Flashcards
Economic System
A particular set of institutional arrangements and a coordinating mechanism for solving the economizing problem; a method of organizing an economy, of which the market system and the command system are the two general types.
Laisses-Faire Capitalism
A hypothetical economic system in which the government’s economic role is limited to protecting private property and establishing a legal environment appropriate to the operation of markets in which only mutually agreeable transactions take place between buyers and sellers; sometimes referred to as “pure capitalism.”
Command System
A method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities; socialism; communism.
Market System
(1) An economic system in which individuals own most economic resources and in which markets and prices serve as the dominant coordinating mechanism used to allocate those resources; capitalism. (2) All the product and resource markets of a market economy and the relationships among them.
Market
Any institution or mechanism that brings together buyers (demanders) and sellers (suppliers) of a particular good or service.
Private Property
The right of private persons and firms to obtain, own, control, employ, dispose of, and bequeath land, capital, and other property.
Freedom of Enterprise
The freedom of firms to obtain economic resources, to use those 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, of workers to enter any line of work for which they are qualified, and of consumers to spend their incomes in the manner that they prefer.
Self-Interest
That which each firm, property owner, worker, and consumer believes is best for itself and seeks to obtain.
Competition
The effort and striving between two or more independent rivals to secure the business of one or more third parties by offering the best possible terms.
Specialization
The use of the resources of an individual, a firm, a region, or a nation to concentrate production on one or a small number of goods and services.
Division of Labor
The separation of the work required to produce a product into a number of different tasks that are performed by different workers; specialization of workers.
Medium of Exchange
Any item sellers generally accept and buyers generally use to pay for a good or service; money; a convenient means of exchanging goods and services without engaging in barter.
Barter
The direct 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
The determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy; consumers’ direction of production through their dollar votes.
Dollar Votes
The “votes” that consumers cast for the production of preferred products when they purchase those products rather than the alternatives that were also available.
Creative Destruction
The hypothesis that the creation of new products and production methods destroys the market power of existing monopolies.
Invisible Hand
The tendency of competition to cause individuals and firms to unintentionally but quite effectively promote the interests of society even when each individual or firm is only attempting to pursue its own interests.
Circular Flow Diagram
An illustration showing the flow 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 households and from households to firms.
Households
Economic entities (of one or more persons occupying a housing unit) that provide resources to the economy and use the income received to purchase goods and services that satisfy economic wants.
Businesses
Economic entities (firms) that purchase resources and provide 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 persons.