Chapter 2: Economic Systems

a signature on a contract indicates that you:

1. have read the document 2. understand the document 3. agree with the document

social security

a federal program of disability and retirement benefits that covers most working people

inflation

a rise in the general level of prices - occurs when workers need more money to pay for goods and services

It can be:

a specific place/location listing, bulletin boards, newspaper ad, the internet, etc.

economic equity

a strong sense of justice, impartiality, and fairness equal pay for equal work. as a result, it is illegal to discriminate on the basis of age, gender, race, religion, or disability in employment advertisers should not be allowed to make false claims about their products

contract

a written agreement describing work, services, or products that need to be completed or delivered between two parties

traditional economy

all economic activity, stems form ritual, habit, or customs (religion) examples: central African Mbuti or the Australian Aborigines: Lapps, Mbuti, Eskimos, Aborigines

Economic System

an organized way of providing for the wants and needs of its members

Market economy

any arrangement which allows buyers and sellers to conduct transactions economist: Adam Smith

Role of the entrepreneur

are the ones who start up new business such as restaurants, automobile repair shops, internet stores, and video arcades (risk is/should be rewarded)

A market economy is normally based on a system of _______ where private citizens, many of whom are entrepreneurs __________

capitalism own the FOP

individuals, businesses, and governments are usually able to resolve conflicting goals through the use of ______ or tradeoffs. The US economic system is flexible enough to accommodate these trade-offs and still to satisfy the majority of Americans

compromise

role of the consumer

consumers often are though of as having power in the economy because they determine which products are ultimately produced

consumer sovereignty

describes the role/power of the consumer as a sovereign or ruler in controlling the marketplace (the customer is always right)

disadvantages of a market economy

does not provide the basic needs of everyone in society does not provide enough of the services that people value highly (private markets) relatively high degree of uncertainty that workers and businesses face as the result of change

advantages of command economy

drastically change macroeconomic direction in a relatively short time little uncertainty in this type of economy minimum levels of education, health, and other public services at little or no cost to its people

7 major goals of the US Economy

economic freedom economic efficiency economic equity economic security full employment price stability economic growth

Characteristics of free enterprise

economic freedom voluntary exchange profit motive competition

role of the protector

enforces laws, such as those against false or misleading advertising, unsafe food and drugs, environmental hazard, and unsafe automobiles also enforces laws against abuses of individual freedoms protects property rights

advantages of traditional economy

everyone knows which role to play little uncertainty exists over WHAT to produce little uncertainty exists over HOW to produce the FOR WHOM question is determined by the customs and traditions of the society life is generally stable, predictable, and continuous

in a free enterprise economy, competition is allowed to _______

flourish with a minimum of government interference

_________ is another term used to describe the American economy

free enterprise

eminent domain

gouvernement pays people money for property so they can use it (taxes, civil forfeiture, drug busts)

consumer

government consumers factors of production just like any other form of business

promoter

government reflects the will of a majority of its people

sanctity of contract

included in a contract - an agreement regarding the use of private property (impossible to break)

advantages of a market economy

it can adjust to change over time (tend to be gradual) high degrees of individual freedom relatively small degree of government interference decision making is decentralized incredible variety of goods and services available to consumers high degree of consumer satisfaction examples: USA, Canada, Japan, Singapore, Germany, France, South Korea

because of these modifications, and because there are some elements from all 3 systems in our economy, the US is said to have a ______ economy or a _____ private enterprise economy

mixed modified (TCM)

economic growth

needed so that people can have more goods and services

Command economy

one in which a central authority makes the economic decisions (the people have little, if any, influence) economist: karl marx

2 types of contracts

oral (verbal) formal

in terms of the goals, why isn't it always possible to satisfy everyone eat the same time?

people have different ideas about how to reach a goal the goals themselves might conflict with one another because even economic policies have opportunity costs

economic freedom

people place a high value on the freedom to make their own economic decisions

economic security

protection form such adverse economic wants as layoffs and illnesses social security

provider

provide goods and services for citizens

disadvantages of command economy

requires a large decision-making bureaucracy "Gosplan" does not give people the incentive to work hard and the results are often unexpected (the former soviet union set some production quotas by weight, can't be unemployed) it is not designed to meet the wants of consumers, even though many basic needs are provided (military/state needs come first) does not have the flexibility to deal with minor, day-to-day problems people with new or unique ideas find it difficult to get ahead in a common economy (arts, math) examples: Mainland China, Cuba, Vietnam

economic efficiency

resources are scarce and that factors of production must be used wisely

price stability

stable prices

disadvantages of traditional economy

tends to discourage new ideas and new ways of doing things punishing people who act differently or break rules lack of progress leads to a lower standard of living than in other types of economic societies

regulator

the national government is charged with preserving competition in the marketplace also observes interstate commerce, communications, and even entire industries (banking, nuclear power)

Private Property

the privilege which entitles people to own and control their possessions as they see fit (Amendment V) includes tangible items such as houses and cars and intangible items such as skills and talents people are free to make decisions about their property and their own abilities they are free to use or abuse as long as it doesn't harm anyone (destroy house) gives people the incentive to work, to save, and to invest

3 major types of economic systems

traditional command market

full employment

when people work, they earn income for themselves while they produce goods and services for others

uses of contracts

with unfamiliar parties as protection for corrective actions readily used in court