ECON: Unit 1: Ch. 2 Flashcards
factor payments
the income ppl receive for supplying factors of production (land, labor, capital, or entrepreneurship)
economic system
the method used by society to produce and distribute goods/services
3 key economic questions
- What goods/services should be produced? (opportunity cost)
- How should these goods/services be produced? (which capitals)
- Who consumes these goods and services? (distribution of income)
safety net
set of government programs that protect ppl from experiencing unfavorable economic conditions
standard of living
level of economic prosperity
traditional economy
relies on habit, custom, or ritual to decide what to produce, how to produce it, to whom to distribute it
-revolves around family, small close communities, slow to adapt, have a low standard of living
market economies
economy decisions are made by individuals and are based on exchange or trade
-AKA free market/capitalism
mixed economy
market-based econ. systems in which gov. plays a limited role
market economies
economy decisions are made by individuals and are based on exchange or trade
- AKA free market/capitalism
- leads to efficient use of resources including capital, land, and labor
- represented by a circular flow diagram (supply and demand)
specialization
the concentration of the productive efforts of individuals and firms on a limited number of activities
circular flow diagram
shows how individuals and businesses exchange money, resources, and products in the marketplace (inner ring of diagram= flow of resources and products, outer ring= flow of money
why do markets exist?
because no one is self-efficient, none of us can produce all we require to satisfy our needs/wants
household
A person or group living in the same residence
players in the free market economy?
households and firms
business/firm
an organization that uses resources to produce a product, which it then sells
Firms purchase factors of production from?
households (this area of exchange= factor market
profit
financial gain made in a transaction
self-interest
their own personal gain
incentive
the hope of reward or the fear of punishment that encourages a person to behave in a certain way
2 Self-Regulation Natures of the Marketplace
self-interest ( motivating force) and competition( regulating force)
competition
economist call this struggle among producers for dollars of consumers
Advantages of the free market include…
-Econ efficiency( responds well to rapidly changing conditions)
-Econ freedom( work where you want, firms produce what they want, individuals consume what they want)
-Econ growth( cause competition encourages innovation, free markets encourage growth)
-Additional Goals( cause producers have incentives to meet consumers desires, consumers decide what gets produced basically, aka consumer sovereignty)
CONS: No economic equity or security
socialism
a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout society
-purpose to achieve economic equality
authoritarian
a type of gov. that requires strict obedience to an authority such as a dictator
collectives
large farms leased from the state to groups of peasant farmers
communism
characterized by a centrally planned economy w/ all economic and political power vesting in the hands of the central gov.
-authoritarian: exact strict obedience with no freedom of judgement and action
7 economic goals and societal values
- economic efficiency: using resources wisely
- economic freedom: laws that forbid purchases
- economic security: welfare, unemployment
- economic predictability: reassurance that goods and services will be available when needed and receive expected payments on time
- equity: what constitues a fair share/higher vs lower paying job
- growth and innovation: must grow to improve standard of living
- full employment: everyone who wants a job will get a job
etc: environmental protection, medical care
Centrally planned economies (good and bad)
- operate in contrast to free market systems, oppose private property, free market pricing, competition, and consumer choice
good: jump start industries/guarantee jobs and income
bad: poor quality, serious shortages of non-priority goods/services, diminishing production, performance almost always falls shorts of ideals, workers lack incentive, sacrifice individual freedoms to pursue societal goals
laissez faire
bitch you know this but… the doctrine that gov. shouldn’t intervene in the marketplace
private property
property that is owned by individuals or companies, not by the gov. Or the ppl as a whole
free enterprise
an economic system characterized by private or corporate ownership of capital goods
transition
period of change where economy moves away from centrally planned economy toward a market-based system
-to do, state firms must be privatized or sold to people and allowed to compete in the marketplace
factor market
firms purchase factors of production from households
product market
goods and services that firms produce and are purchased by households
former soviet union
- led by vladmir lenin, communist
- agriculture: collectives: large farms leased from state to peasant farmers were instructed by government what to produce
- industry: defense, space, machinery
- focus on quantity, not quality
- lack of incentives
- consumers: waited hours to purchase, lack of housing
- end: communism collapsed and russia sought western style democracy, faced corruption, money problems
modern economies
- limits of laissez fair bc they need gov intervention for hwys, edu, private property etc
- balance control and freedom: taxes, army, unemployment, minimum wage
- circular flow model
circular flow model
- gov in factor market: purchases land, labor, capital from households
- gov in production market: purchases goods and services, provides certain goods
- gov transferring money: collects taxes
