Chapter 2 Economics Review

A _______ economic system produces a large variety of goods and services.

market

A disadvantage of a ________ economy is that not enough of some basic goods and services may be provided because producers are focused on making goods they can sell for a profit

market

Consumers are rulers of the market in determining which types of goods and services are produced

through casting dollar votes for goods and services we like. The market changes to reflect our preferences.

A _____________ economic system discourages new ideas by punishing people who break the rules.

traditional

In a ____________ economic system, everyone knows their role. You will likely do the job that your parents did before you.

traditional

adS

'One main characteristic of a mixed economy is the ownership of goods by both private and government/state-owned entities. Monopolies have the potential to occur in this type of economy, but the government closely monitors this. For the economy to be mixed, the government can control some parts but not all First it distributes goods and services to where they are most needed. It allows prices to measure supply and demand. Second, it rewards the most efficient producers with the highest profit. That means customers get the best value for their dollar. Third, it encourages innovation to meet customer needs more creatively, cheaply or efficiently. Fourth, it automatically allocates capital to the most innovative and efficient producers. They, in turn, can invest the capital in more businesses like them. First, it protects private property. Second, it allows the free market and the laws of supply and demand to determine prices. Third, it is driven by the motivation of the self-interest of individuals. A mixed economy has some characteristics of a command economy in strategic areas. It allows the federal government to safeguard its people and its market. The government has a large role in the military, international trade and national transportation.

Disadvantages of mixed economy

-Limited growth for large companies -Taxes support economy and what is best for the general population -Entrepreneurial restraints

Advantages of mixed economy

-economic freedoms to choose -everyone has a say in economy -protection for the consumer and companies

What are the characteristics of a mixed economy

-the government protects the consumer from industrial interests -combines full market economy and command economy - private ownership of property =taxes are collected and use by the government

Disadvantages of market economy

1. Doesn't provide for everyone or enough basic goods and services 2. High degree of uncertainty

Advantages of market economy

1. High individual freedom 2. Adjusts gradually to change 3. Relatively small degree of government interference 4. Decision making is decentralized 5. Variety of goods and services 6. High degree of consumer satisfaction

Social Security

A federal insurance program that provides benefits to retired people and those who are unemployed or disabled.

subsidy

A government payment that supports a business or market

Medicaid

A program of medical aid designed for those unable to afford regular medical service and financed by the state and federal governments.

Workers Comp

A program that provides a cash transfer of state funds to workers injured on the job.

Poverty Threshold

An income below that which is needed to support families and households.

Socialism

Basic means of production are owned and managed by the gov (private ownership with regulations of businesses). Cooperation is stressed over competition. High standard of living but there are high taxes to pay for healthcare and education.

Advantages of command economy

Can change direction drastically in short period of time. Little uncertainty about WHAT, HOW, and FOR WHOM to produce It allows most citizens to recieve some goods and services that they couldnt afford otherwise.

What are the characteristics of a command economy?

Central authority makes the major decisions about WHAT, HOW, and FOR WHOM. Sometimes the central authority is generous with the country's wealth and spreads it around to help everyone. Other times, the central authority steals much of the country's wealth for its leader or top group.

Which type of economy has a disadvantage in that it produces low-quality goods?

Command

Competition

Compete for a profit by trying to produce goods, and services that will be most attractive to consumers. It leads to innovation and better prices.

Individuals

Decide what should be produced, how it should be produced and for whom!

Disadvantages of traditional economy

Discourages new ideas and new ways of doing things. There are strict roles that end up punishing people who act differently, or break the rules. Economic stagnation- slow economic growth, usually accompanied by high unemployment low standard of living

Advantages of traditional economy

Everyone knows their role. Little doubt about what to produce. Little doubt about how to produce. The customs and traditions decide the answer to for whom.

Which of the following describes an example of privatization?

Formerly state-owned companies are sold or given to citizens.

What are the characteristics of a traditional economy?

Goods and services the economy produces, as well as the rules and manner of their distribution is shaped by traditions , customs and beliefs. Individuals are not free to make decisions based on personal desires. Instead they must follow the customs of their elders and ancestors.

Laissez-Faire

Government hands off economy.

What are the characteristics of a market economy?

Great deal of freedom WHAT, HOW, WHAT and FOR WHOM are answered by people who make supply and demand decisions. Buyers and sellers interact to decide the prices and amount of goods and services bought and sold. Offer private ownership of resources. Based on capitalism- private citizens own and use the factors of production for their own profit or gain.

Disadvantages of command economy

Leaders are greedy. Loss of individual freedom. Low quality of goods due to quotas Quotas A large bureaucracy, or gov administration is required to run an economy with major elements of command decision-making. Rewards for individual initiatives (effort) are rare.

What is the role of the government in a Free Enterprise?

Makes sure the producers provide consumers with information, imposes various restrictions and protects consumers.

In a __________ economic system, "dollar votes" are cast by individuals to indicate to producers, which goods and services should be made.

Market

Which economic system is said by some economist to run as if directed by an invisible hand?

Market

What is the most common economic system found in the world today?

Mixed Economies

Self-Interest

Motivate production to earn profits. Incentives for consumers to fulfill their wants and needs at the best price possible.

Pure command or market economies.

No examples in the world

Markets exist because

No one is self-sufficient

What's a benefit of having privately owned resources in a market economy?

People take better care of productive goods and resources when they actually own them.

Incentive

Provides you the motivation to pursue your preferences.

What is the invisible hand and which economic system does it apply to?

Self-regulating nature of marketplace and Free Market/ Market Economy

How is the principle of "There's No Such Thing As A Free Lunch" illustrated in a socialist economy (Think of healthcare in France)?

Socialist economies tend to offer extensive government services but have high tax rates.

Medicare

The United States federal government health insurance program for Americans who are 65 years of age and older.

Communism

The central gov owns and controls all resources, means of production and make all economic decisions. No competition because everything is controlled by gov causing Low quality goods. Everyone is equal. Bad standard of living.

What's a key difference between a command economy and socialism?

The government of a command economy owns all of the productive resources, whereas the government of a socialist economy owns just some.

Privitizing

There is movement from a command economy to a more market economy. State owned industries being sold to individuals.

Why would a market economy need government intervention?

To provide for things that the marketplace does not address

Services

Transaction in which no physical goods are transferred from the seller to the buyer.

Three basic economic questions

What to produce? How to produce? For whom to produce? Who consumes the goods and services produced?

A ________ economic system generally produces low quality goods due to the use of quota systems to motivate unhappy workers.

command

In a _________ economic system, wages can be uniform reguardless of your profession which provides little incentive for people to learn or work harder

command

In a ____________ economic system, services like transportation, health care, and education, are provided to citizens at little or no cost.

command

What is specialization and why do economies use it?

focusing on one product or a limited scope of products to become more efficient/increases productivity and provides a comparative advantage for a firm or economy

How does the circular flow model work?

goods and services on top land labor capital on bottom

In Kind Benefits

goods and services provided for free or at greatly reduced prices. Examples are food stamps, subsidized housing and legal aid.

In a _________ economic system, workers may fear that their jobs could be moved to other countries where labor costs are lower.

market

In a __________ economy, some people like the elderly or ill, would have difficulty surviving.

market

All modern economies

mixed economies

What is the role of the consumer in a Free Enterprise?

pay for products and services. Self interest drives the economic system. Consumers determine what to produce.

Free Enterprise

private business operates in competition and largely free of state control. Freely make choices in their economic roles. Competition is allowed to flourish without gov. interference.

Programs that provide services for the public using taxpayer dollars are often considered

socialist.

What is the role of the entrepreneur in a Free Enterprise?

start a business/introduces new product/improves processes.

Specialization

the concentration of the productive efforts of individuals and firms on a limited number of activities. It leads to efficiency.

Welfare

the government collects taxes from individuals and redistributes some of those funds as welfare (gov aid to the poor)

Why does even a free market economy need some government intervention?

to provide for things that the marketplace does not address

The level of government involvement in a mixed economy can best be described as

varied.

Capitalism

Individuals control the means of production. Also the market determines the prices of goods and services, to be sold at. Competition keeps prices low and quality high. High standard of living. Free to earn profit but have risks/losses.

Goods

Satisfy human wants and provide utility.

What is privatization and which country is currently practicing it?

The transfer of a business, industry or service from public to private ownership and control. China

Which of these is an accurate statement about mixed economies today

There are more mixed economies in the world than any other kind.