Economic Systems Test Flashcards
Define the Circular Flow Model.
-visualizes how all interactive occur in a market economy
-2 decision makers
-households and markets
shows the 2 markets where households and businesses meet
Define competition
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Define Economic System
the way a society uses its scarce resources to satisfy its peoples unlimited wants
Define Factor Market
- market for the factors of production
- businesses purchase the factors they need from the factor market
Define Global Economy
-all economic interactions that cross international boundaries
Define Laissez Faire
- principle that the government should not interfere in the market place
- “Hands off” or “Leave things alone”
Define nationalize
-means to change from private ownership to government or public ownership
Define Privatize
-means to change from government or public ownership to private ownership
Define Product Market
- market for goods and services
- set of activities in which people buy goods and services
Define Specialization
- a situation in which people concentrate their efforts in the activities they do best
- allows people to trade what they can most efficiently produce.
- removes the need for households to be self sufficent
Define Voluntary Exchange
- a trade in which both traders believe what they are getting is worth more than what they are giving up
- based on self interest
what is another name for a command economy?
communism
Where is the real power in the market found in a market economy?
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In which type of economy do producers and consumers drive the economy?
Market
Who was Karl Marx and what was his theory?
- a german philosopher that was the “Father of Communism: he cowrote the communist manifesto
- he believed that communism was the way to go
How many pure market economies exist today?
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What is a mixed Economy?
- an economic system that has elements of traditional, command, and market economies
- most common type of economy today
Define Command Economy.
the central govt makes all decisions on the production and consumption of goods and services
list positive and negative aspects of a Command Economy
Positve:
-govt is able to equally distribute resources
-govt works in best interest of everyone
Negative:
-inefficent based on the:
-unfair and flawed govt decisions
-lack of motivation for people to work
-lack of individual freedomDefine Market Economy
decisions on production and consumption of goods and services are based on voluntary exchanges in markets
List positive and negative aspects of a Market Economy
Positive:
-individual freedom to act in one’s own self-interest
-most efficent use of resources- individuals act in their own self-interest and in the self interest of others
Negative:
-uneven distribution of resources
-some needs are met, if they don’t coincide with the needs of the majority
