Economic Systems Test

Question 1

Define the Circular Flow Model.

Answer 1

-visualizes how all interactive occur in a market economy
-2 decision makers
-households and markets
shows the 2 markets where households and businesses meet

Question 2

Define competition

Answer 2

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Question 3

Define Economic System

Answer 3

the way a society uses its scarce resources to satisfy its peoples unlimited wants

Question 4

Define Factor Market

Answer 4

• market for the factors of production

- businesses purchase the factors they need from the factor market

Question 5

Define Global Economy

Answer 5

-all economic interactions that cross international boundaries

Question 6

Define Laissez Faire

Answer 6

• principle that the government should not interfere in the market place
• “Hands off” or “Leave things alone”

Question 7

Define nationalize

Answer 7

-means to change from private ownership to government or public ownership

Question 8

Define Privatize

Answer 8

-means to change from government or public ownership to private ownership

Question 9

Define Product Market

Answer 9

• market for goods and services

- set of activities in which people buy goods and services

Question 10

Define Specialization

Answer 10

• 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

Question 11

Define Voluntary Exchange

Answer 11

• a trade in which both traders believe what they are getting is worth more than what they are giving up
• based on self interest

Question 12

what is another name for a command economy?

Answer 12

communism

Question 13

Where is the real power in the market found in a market economy?

Answer 13

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Question 14

In which type of economy do producers and consumers drive the economy?

Answer 14

Market

Question 15

Who was Karl Marx and what was his theory?

Answer 15

• a german philosopher that was the “Father of Communism: he cowrote the communist manifesto
• he believed that communism was the way to go

Question 16

How many pure market economies exist today?

Answer 16

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Question 17

What is a mixed Economy?

Answer 17

• an economic system that has elements of traditional, command, and market economies
• most common type of economy today

Question 18

Define Command Economy.

Answer 18

the central govt makes all decisions on the production and consumption of goods and services

Question 19

list positive and negative aspects of a Command Economy

Answer 19

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 freedom

Question 20

Define Market Economy

Answer 20

decisions on production and consumption of goods and services are based on voluntary exchanges in markets

Question 21

List positive and negative aspects of a Market Economy

Answer 21

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