Econ. Ch. 2 Flashcards
Economic system
The method used by society to distribute goods and services to individuals and groups.
Three economic questions
- What goods and services should be produced?
- How should these goods and services to be produced?
- Who consumes these goods and services?
Economic goals(5)
- Economic Supply (demand/economic efficiency)
- Economic Freedom(free from government intervention)
- Economic Security(such as safety nets)
- Economic Equity(fair distribution of wealth)
- Economic Growth(growing economy)
Safety net
Government programs that help firms in undesirable situations
Traditional economy
Relies on habit, custom, very little change in the economy and low growth
Market economies
Economic decisions made by individuals and it based on supply and demand
Centrally planned economies
A central government that makes the decisions of society
Mixed economy
So mixture of the three economies
Circular flow of market economy
Illustrates the efficiency of a free market economy
Factor market
Exchange of resources for production for money between households and firms
Invisible hand theory
1.)Self interest is the motivating force. 2.)Competition close the market to function efficiently or regulate itself.
Product market
They exchange of goods for money between households and firms
Specializaton
One person that focuses on one task
Capitalism
an economic and political system in which a country’s trade and industry are controlled by private owners for profit
Communism
advocating class war and leading to a society in which all property is publicly owned and each person works and is paid according to their abilities and needs
