Principles 5-7 Vocabulary

Question 1

Specialization

Answer 1

focusing on the production of limited goods for more efficiency

ex: a nation with EASY access to lumber should SPECIALIZE in furniture and building materials because they will be able to produce those goods EFFICIENTLY

Question 2

Comparative advantage

(Think of “COMPARATIVE” as comparing two producers’ opportunity costs)

Answer 2

The ability to produce a good at a lower opportunity cost than another producer.

Question 3

Absolute advantage

(Think of “ABSOLUTE” as to the absolute quantity of goods produced)

Answer 3

The ability to produce a good in fewer units than another producer.

Question 4

Traditional economy

Answer 4

a system that relies on customs, history, and time-honored believes

ex: basic crop growing and agriculture-based economy

Question 5

Command economy

Answer 5

all economic activity (prodicution, investment, prices, labor, incomes) are determined centrally by the state (government)

decision maker: the state

Question 6

Socialism

Answer 6

means of productions, distribution, and exchange are owned and managed cooperatively

Decision maker: society or the collective

Question 7

Capitalism

Answer 7

an economic system in which the means of producing goods/services are PRIVATELY owned and operated for profit

Ex: Starbucks and Whole Foods

Question 8

Market

Answer 8

any structure that allows buyers and sellers to exchange any type of goods, services, and information

Question 9

Invisible hand

Answer 9

the interaction of buyers and sellers determines the prices of goods and services; NO gov interference

Question 10

Mixed economy

Answer 10

both gov/public and private sectors make decisions about and have ownership in companies; consumers and producers still have decision making goals

Question 11

Public sector

Answer 11

government and its related services (ex: public schools and parks)

Question 12

Private sector

Answer 12

privately owned businesses w/ the goal of profit

Question 13

Efficient Market

Answer 13

All info reflected in prices.

Example: Stock prices adjust quickly.

Question 14

Market Failure

Answer 14

Market fails to allocate resources efficiently

Example: Pollution causing harm.

Question 15

Monopoly

Answer 15

Single seller controls market.

Example: Patented drug pricing
Example 2: Ticketmaster

Question 16

Externalities (positive and negative)

Answer 16

Spillover effects on third parties.

Example: Vaccination benefits community.

Question 17

Merit Good

Answer 17

Undervalued but beneficial

Example: Education subsidies (cost)

Question 18

Demerit Good

Answer 18

Overvalued (overestimated) and harmful

Example: Tobacco products.

Question 19

Free Rider Problem

Answer 19

Benefit without paying.

Example: Using public parks without paying taxes.

Question 20

Public Good

Answer 20

Non-excludable, non-rivalrous.

Example: Street lighting

Question 21

Non-exclusion

Answer 21

Unable to exclude from consumption.

Example: Clean air.

Question 22

Non-rivalry

Answer 22

Consumption doesn’t reduce others’ access.

Example: Radio broadcast.

Question 23

Tragedy of the Commons

Answer 23

Overuse of shared resources

Example: Overfishing in oceans.

Question 24

Regulatory Policies

(Think of “REGULATE” as imposing rules or controls)

Answer 24

Laws to correct market failures.

Example: Pollution emission standards

Question 25

Market-based Policies

(Think of ‘MARKET’ as using the way markets work)

Answer 25

Encourage market solutions.

Example: Carbon trading.