Chapter 3 Flashcards
What is The role of the consumer
voluntary exchange - through voluntary exchange the consumer sends a signal to businesses willing them what to produce and how much to make. they also send a signal when they do not buy a good or service - that the product id undesirable or overpriced. therefore, any artificial constraints such as price ceilings, minimum wage, government subsidies, ect. necessarily obstructs this information.
interest groups - consumers interest groups persuade political leaders to pass laws to protect consumers.
5 basic principles of free enterprise and discus the advantages of each
profit motive
the incentive that drives individuals and business owners to improve their material well being
forces businesses to exercise financial discipline
it entourages entrepreneurs to take rational risks
improves productivity by allowing more efficient companies to makes more money and inefficient companies to fail
rewards innovation by letting creative companies grow
open opportunity
allows anyone a chance to be an entrepreneur
allows economic mobility up and down
legal equality
to maximize human capital, legal equality is encourages - civil rights are protected by market driven economic interests
private property
people have the right to control their possessions and use them as they wish
personal ownership provides incentive to use property wisely
freedom to buy and sell
free contract - allows people to decide what agreements they want to enter into
voluntary exchange - allows people to decide what, when, and how they want to buy and sell
Economic freedoms regarding property rights, taxation and contracts
property rights
the influence john Locke on the founders: property rights as protection of individual liberty
the fifth amendment asserts that “no person … shall be deprived of life, liberty, or property without due process of law; nor shall private property be taken for public use without just compensations.”
the 14th amendment extend this protection from the national govt to the state govts
eminent domain
taxation
no taxation on exports
article i, section 9 requires that direct taxes be levied to states by population, thus in effect prohibiting direct taxation of individuals; ergo; taxation of income was illegal.
the 16th amendment, ratified in 1913, gave congress the right to tax directly based on income (the income tax)
contracts
the constitution guarantees businesses and people the right to make legally binding agreement, contracts..
article i, section 10 prohibits states from passing any law impairing the obligation of contracts
How has the role of government in our economy changed since the founding of our country?
initially the role of government was to protect property rights, and other business activities. BUT over time americans have come to expect government to take other actions to promote the public interest, the concerns of society as a whole.
Be able to discus the ways government may promote economic strength
through encouraging higher employment
many economist regard 10-11% unemployment as ideal
by encouraging economic growth and therefore a higher standard of living [increasing GPD is a sign of such growth]
some economist believe that increased spending is the best approach to help
some economist believe tax increase is the answer
encouraging economic stability
large fluctuations tend to weaken confidence in the economy and therefore discourages private investment, which in turn results in lower growth
a major indicator of stability is price
another indicator is security of economic institutions, such as banks or the stock market
to economic stability the federal government
provides protection up to 250k ex: FDIC
investing fraud ex: SEC
regulate flow of money ex: the federal reserve
In what ways have our government encouraged technological innovation
grants - morrill acts of 1862 and 90
government research - NASA
by providing patents and copyrights
the incentive that drives indivisuals and businesses owners to improve their material well being
profit motive
the principle that anyone can compete in the marketplace
open opportunity
the principle that everyone has the same legal rights
legal equality
the principle that people have the right to control their possessions and use them as they wish
private property rights
the principle that people may decide what agreements they want to enter into
free contract
voluntary exchange
the principle that people may decide what, when, and how they want to buy and sell
a private organization that tries to persuade public officials to act in ways that benefit its members
interest groups
love of ones countries
patriotism
the right of a government to take private property for public use
eminent domain
the concerns of society as a whole
public interest
laws requiring companies to provide information about their products or services
public disclosure laws
gross domestic product
the total value of all final goods and services produced in a country ina given year
a period of macroeconomic expansion followed by one of decline
business cycle
a proposed law submitted directly to the public
referendum
obsolescence
situation in which older products and processes become out of date
a government license that gives the inventor of a new product the executive right to produce and sell it
patent`
a government license that grants an author exclusive rights to publish and sell creative works
copyright
a commitment to the value of work
work ethic
public good
a shared good or service for which it would be inefficient to make consumers pay individually and to exclude those who did not pay
public sector
the part of the economy that involves the transactions of the government
private sector
the part of the economy that involves the transactions of individuals and businesses
infrastructure
the basic facilities that necessary for a society to function and grow
someone who would not be willing to pay for a certain good or service but who would get the benefits of it anyway if it were provided as a public goods
free rider
market failure
a situation in which the free market, operating on its own, does not distribute resources efficiently
externality
an economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume
government aid to the poor
welfare
direct payments of money by the government to poor, disabled, or retire people
cash transfers
an income level below that which is needed to support families or households
poverty threshold
goods and services provided for free or at greatlly reduced prices
in-kind benefits
a financial award given by a government agency to private individual or group in order to carry out a specific task
grant
expansion
a period of economic growth as measured by a rise in real GDP
contraction
a period of economic decline marked by falling real GDP
