Economics Ch.2
What "invisible hand" regulates the free market economy?
Competition
Why are free market economies able to attain economic growth?
Competition encourages innovation, which causes growth
In which of the following lists of mixed economies does the free market system dominate?
U.S., UK, Singapore and Hong Kong
Each society answers the three basic economic questions based in its...
Unique combination of values and goals
Free market economy
an economic system in which decisions on the three key questions are based on voluntary exchange in markets
Traditional economy
an economic system that relies on habit, custom, or ritual to decide the three key economic questions
Self-interest
an individual's own personal gain
Firm
an organization that uses resources to produce a product of service, which it then sells
Market
any arrangement that allows buyers and sellers to exchange things
Specialization
the concentration of the productive efforts of individuals and businesses on a limited number of activities
Factor Payment
the income people receive in return for supplying factors of production
Consumer sovereignty
the power of consumers to decide what gets produced
Innovation
the process of bringing new methods, products, or ideas into use
Competition
the struggle among producers for the dollars of consumers
How is the economic system in China today different from the one in soviet Russia?
Chinese gov allows more economic freedom
Free enterprise system
an economic system characterized by private or corporate ownership of capital goods
Communism
A political system in which the gov owns and controls all resources and means of production and makes all economic decisions
Which of the following philosophers argued that a free market would regulate itself with little gov involvement?
Adam smith
The U.S. Economy is a mixed economy
Based on a free market but allowing some gov intervention
Traditional economies are usually ...
Based on customs and beliefs.
The main difference between the economies of China and North Korea is that
China is privatizing state-run businesses
What does the expression "the customer is king" mean in a free market economy?
Customers have the power to decide what gets produced
How did heavy industry in the Soviet Union avoid the competition that drives a free market economy
Gov discourages competition by determining prices, wages, and products
Gov intervention in a modern economy is useful because
Gov is more able to meet some needs and wants of modern society
To improve its standard of living, a nation's economy must
Grow through innovation
Who owns the factors of production?
Households
The ways in which factors of production are combined determines the answer to which economic question?
How will goods be produced?
What does the process of specialization do for an economy?
Makes the production more efficient
Why do people need to buy and sell products or services?
No one is self sufficient
The United States gov intervenes in the economy in order to?
Promote general welfare
A socialist society has a more flexible command economy than a communist society because
Some free market practices can combine with central economic planning
Incentive
The hope of reward or fear of penalty that encourages a person to behave a certain way
What is the product market?
The market in which households purchase goods and services
How will consumers react to the incentive of a higher price on a good or service?
The negative incentive will cause consumers to purchase less of the good/service
Economic System
The structure of methods and principles that a society uses to produce and distribute goods and services
What might be a hardship for citizens of a centrally planned economy making a transition to a free market economy?
Workers would lose job security and guarenteed incomes
Mixed economy
a market-based economic system in which the gov is involved to some extent
Economic transition
a period of change in which a nation moves from one economic system to another
Household
a person or group living in a single residence
Socialism
a range of economic and political systems based on the belief that wealth should be distributed evenly throughout a society
Safety Net
a set of government programs that protect people who face unfavorable economic conditions
Invisible hand
a term coined by Adam Smith to describe the self-regulating nature of the marketplace
Authoritarian
describes a form of gov that limits individual freedoms and requires strict obedience from citizens
Laissez Faire
doctrine that gov generally should not intervene in marketplace
Centrally planned economy
economic system in which the gov makes all decisions on the three key questions (AKA command economy)
Standard of living
level of economic prosperity
Privatization
process of selling businesses or services operated by the gov to individual investors, and then allowing them to compete in the marketplace
Private property
property that's owned by individuals or companies, not by gov or people as a whole
Profit
the amount of money a business receives in excess of its expenses
Factor market
the arena of exchange in which households purchase goods and services from firms