Intro - Chptr 3 Flashcards
What is a market economy?
An economic system based on private property and the market. It gives private property rights to individuals and relies on market forces to coordinate economic policy. Individuals are free to do whatever they want as long as it’s legal. The pricing mechanism is what determines how goods are rationed and people’s desires are coordinated.
Socialism
Socialism is, in theory, an economic system based on individuals’ goodwill toward others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce.
Capitalism
An economic system based on the market in which the ownership of the means of production resides with a small group of individuals called capitalists.
Feudalism
An economic system in which traditions rule. e.g. if your parents were serfs, you would be a serf.
Mercantilism
An economic system in which government determines the what, how, and for whom decisions by doling out the rights to undertake certain economic activities.
Industrial Revolution
A time in the 1700s when technology and machines rapidly modernized industrial production and mass-produced goods replaced handmade goods.
How did economic systems evolve?
Feudalism (8th to the 15th century) ->
Mercantilism (15th to the 18th century) ->
Capitalism (mid-18th century -….) ->
Socialism (early 20th century)
Capitalism (1980s -…)
Forms of business?
Sole proprietorships: One owner
Partnerships: Two or more owners.
Corporations: Businesses treated as a person and that are legally owned by stockholders, who are not liable for the actions of the corporate “person.”
How do corporations work?
A corporation issues stock (certificates of ownership in a company) which is sold or given to individuals. Proceeds from sale of stock make up the “equity capital” of a company.
Limited liability in a corporation?
Stockholder’s liability is limited to the amount the stockholder has invested in the company.
Placeholder image: advantages & disadvantages of various forms of for-profit businesses:
chart image.
Factor market
Market where households supply labor and other factors of production to businesses and are paid by businesses for doing so.
Goods market
Market where businesses produce goods and services and sell them to households and government.
Market Economy: Diagram
placeholder: diagram of market economy
World Trade Organization (WTO):
An organization committed to getting countries to agree not to impose new tariffs or other trade restrictions except under certain limited conditions.
