Chapter 4

Question 1

Mercantilism

Answer 1

And economic theory that emphasizes the importance of stockpiling gold and silver to the economic power of a nation. Mercantilists regulated the economy by encouraging exports and restricting imports.

Question 2

Command system

Answer 2

An economic system in which the allocation of resources is heavily controlled by government instead of free market forces.

Question 3

Navigation acts

Answer 3

Economic regulations passed by British Parliament to enforce trade regulations in the colonies: all trade had to go through British or colonial merchants and be shipped in British or colonial ships with the end goal to generate large exports from England, with you imports, so that gold and silver would flow into the motherland.

Question 4

Capitalism

Answer 4

The philosophy of a free market economy in which the government serves only to create an acceptable environment in which to make exchanges.

Question 5

The wealth of Nations

Answer 5

Book written by Scottish economist Adam Smith that criticized mercantilism and propose a free market economy in which the “invisible hand” determined prices.

Question 6

Markets

Answer 6

Divisions of the economy that specialize in certain goods or services.

Question 7

Market economy

Answer 7

And economic model advanced by Adam Smith in which the forces of individual self interest relate to the economy. This self regulation eliminates the need for most government intervention.

Question 8

Exchange

Answer 8

Trade between two parties.

Question 9

Role of money

Answer 9

Money facilitates exchange by illuminating the necessity for “coincidence of wants,” functioning as a generally acceptable medium for exchange.

Question 10

Coincidence of wants

Answer 10

Went to parties each possessed something desired by the other, promoting an exchange.

Question 11

Specialization

Answer 11

The economic practice of focusing resources on production of one or a few goods

Question 12

Perfect competition

Answer 12

When buyers and sellers have no influence on the price and terms of exchange.

Question 13

Collusion

Answer 13

When sellers are conspiring to maintain a high price and avoid competing with one another.

Question 14

Monopoly

Answer 14

When one person or group captures enough market power to control or manipulate prices; The lack of competition in a market.

Question 15

Law of supply

Answer 15

As the price of a good or service rises, suppliers will produce more of that a good or service.

Question 16

Law of demand

Answer 16

As the price of a particular good or service rises, individuals will buy less of that good or service.

Question 17

Role of prices

Answer 17

In a market economy, prices determine the quantity of goods supplied.

Question 18

Role of profits

Answer 18

In a market economy as profits increase, the number of suppliers and resources for making that good will increase.

Question 19

Equilibrium price

Answer 19

The price at which the amount demanded is equal to the amount supplied.

Question 20

Shortage

Answer 20

When the amount demanded is greater than the amount supplied.

Question 21

Surplus

Answer 21

When the amount supplied is greater than the amount demanded.

Question 22

The invisible hand

Answer 22

Adam Smith’s term for the natural self regulation of market economy driven by self interest and efficiency.

Question 23

Laissez-faire

Answer 23

Policy in which there is little or no inter-Ference with exchange, trade, or market prices by the government.

Question 24

Adam Smith

Answer 24

1723 until 1790, Scottish philosopher and economist who wrote the wealth of Nations. He is considered the father of modern economics.