Economic Systems Friday Test Flashcards
two basic types of economics in the world today?
Microeconomics and Macroeconomics
__ is the study of individuals, families, and businesses in the economy.
Micro
__is the study of the economy as a whole and is concerned with large-scale economic activity
Macro
__ studies economics behavior as it is (U.S. unemployment rate is 6%)
Ex. Higher interest rates will reduce house prices
Positive Economics
__ involves judgements of what economic behavior ought to be. (U.S. unemployment should be lower)
Ex. Pollution is the most serious economic problem.
Normative Economics
__ is the way a society uses its scarce resources to satisfy its peoples unlimited wants.
economic system
__ three basic types of economics systems:
Traditional economies
Command economies
Market economies
__ is an economic system in which families, clans, or tribes make economic decisions based on customs and beliefs that have been handed down from generation to generation
traditional economy
The one goal of traditional societies is__?
survival
In a ____, the government decides what goods and services will be produced, how they will be produced, and how they will be distributed.
Command economy
__ based on individuals choice, not government directives
market economy
In a market economy, ___ drive the economy
consumers and producers
___ decide what goods or services they will offer.
Producers
___ act in their own self-interest when they make economic choices.
Individuals
__ born in Scotland, in 1723 and studied, and later taught literature, logic, and moral philosophy.
Adam Smith
In what does Smith challenged the ideas of mercantilism being economically sound?
His book, Wealth of Nations
___ is a system by which the government of the homeland controlled trade with its colonies.
Mercantilism
A nation would be wealthier if it is engaged with__?
free trade
He reasoned that people behave in ways that satisfy their __?
economic self-interest.
___ guides the marketplace
“invisible hand”
Advantages of Traditional Economies
Traditional economies clearly answer the three economic questions
***They produce what best ensures its survival
The methods of productions are the same as they always have been
Systems of distribution are determined by custom or tradition
Little disagreement over economies
Disadvantages of Traditional Economies
Bc they are based on ritual and customs, they resist change
They are less productive than they might be if they adopted new approaches
They prevent people from doing the jobs they want to do or best suited to do.
***Very low standard of living.
A system in which the society’s leaders, usually members of the central government, make all economic decisions is called a ?
centrally planned economy
Modern societies that have adopted command economies have done so largely because of the influence of ?
Karl Marx
Marx predicted that in time, the workers would overthrow this system and transfer ownership of the factories to ___?
public hands
___ is an economic system in which the government owns some or all of the factors of production
Socialism
___ is an economic system in which the government owns all the factors of production and there is little or no political freedom
Communism
Typically communism will become__?
authoritarian
___ requires absolute obedience to those in power
authoritarian system
__ is established through the democratic political process rather than through the violent overthrow of the government
Democratic socialism
In this form of socialism(democratic socialism), the ___ owns the basic industries, but other industries are privately owned
government
__ was born in what is now Germany in 1818 and grew up in middle-class comfort
Marx
Marx would be exiled from his homeland for becoming involved in __?
radical politics
During Marx travels, he met___ , the son of a factory worker.
Friedrich Engels
Marx concluded that the Industrial Revolution had created a system of __?
wage slavery
The whole industrial system, Marx reasoned, was based on the__?
exploitation of workers
Marx, assisted by Engels, laid out ideas of worker overthrow in __?
The Communist Manifesto (1848)
__ still has an economy with mostly command elements.
North Korea
Advantages of Command Economies
- They seek to provide for everyone
- Leaders in a command econ can use the nation’s resources to produce items that may not make money in a market economy.
Disadvantages of Command Economies
- Central planners often have little understanding of local conditions
- Workers often have little motive to improve their productivity
- Often set prices well below those that would be established in a market system
- Command economies face shortages.
Self-interest behavior is behind two features of a market economy:
private property rights and Market
___ are the rights of individuals and groups to own businesses and resources
Private property rights
__ is vital to any single sale or exchange
Clear ownership
__ are necessary to make markets work properly
Private Property Rights
The principle that the government should not interfere in the economy is called?
laissez faire
The concept of laissez faire is often paired with__?
Capitalism
__ is an economic system that is based on private ownership of the factors of production.
Capitalism
Capitalism,___,operates on the belief that, on their own, producers will create the good and serviced that consumers demand
the foundation of market economies
__is a market economy in its pure form
Laissez faire capitalism
__is a trade in which both traders believe that what they are getting is worth more than what they are giving up.
A voluntary exchange
___guides voluntary exchanges?
Self-interest
___is considered a financial gain from a business transaction
Profit
___is the effort of two or more people, acting independently, to get the business of others by offering the best deal.
Competition
__is the idea that because consumers are free to purchase what they want and refuse products they do not, they have the ultimate control over what is produced.
Consumer Sovereignty
___acts as a control on self-interest behavior, guiding the market forward a balance between higher value and lower prices.
Competition
___is a situation in which people concentrate their efforts in the areas in which they have an advantage.
Specialization
Specialization removes the need for____, and markets allow households to trade for what they need.
households to be self-sufficient
__ is a tool that economist use to understand how market economies operate.
circular flow model
The model represents the two key economic decisions makers in a market economy.. ?
Households
Businesses
The market for goods and services is called the__?
product market
The product market isnt a place as much as it is a___?
set of activities
The suppliers of the product market are __?
businesses
__ is the market for the factors of production.
Factor Market
__own all the factors of production?
Individuals
In the factor market,___ are the customers and ___ are the producers.
Businesses, Individuals
Advantages of Economic and Political Freedom..
- Freedom is one of the chief advantages of a market economy
- Fewer areas of government involvement unlike the command economy
- A market economy also can be responsive to changes in conditions and accommodate those changes quickly
- Individuals in local communities are free to make their own economic choices without the interference of the government
___ ,a key feature of the market economy, ensures that resources will be allocated efficiently, since inefficiencies would result in lower profits
Profit motive
Incentives to come up with good ideas is related to another advantage of a market economy:
Competition
Competition leads to higher-quality products at lower prices and helps create a ___?
diverse product market
___, the economic good of the individual is the primary focus
pure market economy
Disadvantages of pure market economy..
A pure market economy has no mechanism for providing public goods and service i.e. National Defense
Pure market economies cannot provide security to those who, because of sickness or age cannot be economically productive.
Nor can it prevent the unequal distribution of wealth, even though the gap may be the result of unequal opportunities
___ is the most common type of economies system today.
mixed economy
A mixed economy is an economy that has elements of..?
traditional, command, and market systems.
__, tried to find a middle ground between socialism and capitalism
France
Even though there are traditional and command elements, the driving forces of the US economy are such features as ___?
private ownership markets
___, while also a mixed economy, has much greater government involvement
Sweden
The Swedish government and government-related organizations own ___ of all Swedish companies
one-third
Swedish citizens receive___ social benefits.
“cradle to grave” (whole life)
__ means to change from provide ownership to government or public ownership.
To nationalize
__ means to change from government or public ownership to private ownership.
To privatize
One way to help privatize an industry is to open it up to ___?
foreign investors
This kind of economic tie between nations is only one example of the__?
global economy
___refers to all the economic interactions that cross international boundaries.
Global economy
___also have been enhanced by cross-border business partnerships.
Globalization
