Chapter 3

Question 1

institutions

Answer 1

the formal and informal rules that constrain human economic behavior

Question 2

market economy

Answer 2

an economic system based on private property and the market in which, in principle, individuals decide how, what, and for whom to produce

Question 3

private property rights

Answer 3

the control a private individual or firm has over an asset

Question 4

socialism

Answer 4

an economic system based on individuals’ goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce

Question 5

capitalism

Answer 5

an economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists

Question 6

entrepreneurship

Answer 6

the ability to organize and get something done

Question 7

consumer sovereignty

Answer 7

the consumer’s wishes determine what’s produced

Question 8

corporations

Answer 8

businesses that are treated as a person, and are legally owned by their stockholders, who are not liable for the actions of the corporate “person”

Question 9

market failure

Answer 9

situations in which the market does not lead to a desired result

Question 10

government failure

Answer 10

situations in which the government intervenes and makes things worse