Economics Chapter 3
Transfer payments
A transfer payment is a one-way payment to a person or organization which has given or exchanged no goods or services for it. This contrasts with a simple "payment," which in economics refers to a transfer of money in exchange for a product or service. Connection: Factor payments, Voluntary exchange, Circular flow model
Full employment
Almost all the people who want a job can find work. We agree that there should be a job for everyone ready, willing, and able to work. When it comes to the PPF and other economic models it means that all resources that can be used are being employed in the production of goods and service. Connection: Transfer payments, Economic growth, Economic security
Economic Equity
Americans believe in economic equity. It means fairness and impartiality. The economic system should offer all citizens equal economic opportunities.
Price system
An arrangement that uses monetary prices as messages to facilitate exchanges between buyers and sellers Connection: Price system, Economic freedom, Economic growth, Free enterprise system, Economic stability or price stability
Democratic Socialism
An economic system in which some means of producing and distributing goods are owned or controlled by an elected government, where the government owns large industries like electricity, railroads, where the government directly controls production in these state-owned facilities. Connection: Socialism,Public works, Price system, Price system, Private Property, Public property
Authoritarian Socialism/Communism
An economic system in which the government owns or controls nearly all factors of production; also known as communism, usually have a one-party totalitarian government and a single political party. The economy is planned by an economic agency. Type of mixed economy. Connection: Public works, Public property, Economic security, Command economy, Socialism
Economic planning
A centrally planned economy, also known as a command economy, is an economic system in which a central authority, such as a government, makes economic decisions regarding the manufacturing and the distribution of products. Centrally planned economies are different from market economies, in which such decisions are traditionally made by businesses and consumers. Connection: Economic growth, Economic efficiency, Economic security, Economic Equity, Price system, Circular flow model
Command economy
A command economy is a system where the government, rather than the free market, determines what goods should be produced, how much should be produced, and the price at which the goods are offered for sale. It also determines investments and incomes. Connection: Authoritarian Socialism/Communism, Economic stability or price stability, Economic security, Public works, Karl Marx/Communitst Manifesto, Public Property
Contract
A contract is a legally binding document between that defines and governs the rights and duties of the parties to an agreement.[1] A contract is legally enforceable because it meets the requirements and approval of the law. A contract typically involves the exchange of goods, service, money, or promise of any of those. "Breach of contract", means that the law will have to award the injured party either the access to legal remedies such as damages or cancellation Connection: Transfer payments, Property rights, Price system
Factor/Resource market
A factor market is a market in which companies buy the factors of production or the resources they need to produce their goods and services. Companies buy these productive resources in return for making payments at factor prices. This market is also referred to as the input market. Connection: Households, Firms, Product market, Factor/Resource market, Economic planning, Market competition, Price system, Factor payments
Mixed economy
A mixed economic system is a system that combines aspects of both capitalism and socialism. A mixed economic system protects private property and allows a level of economic freedom in the use of capital, but also allows for governments to interfere in economic activities in order to achieve social aims. Connection: Capitalism, Traditional economy, Market economy, Authoritarian Socialism/Communism, Public works, Property rights, Intellectual property
Traditional economy
A traditional economy is a system that relies on customs, history, and time-honored beliefs. Tradition guides economic decisions such as production and distribution. Societies with traditional economies depend on agriculture, fishing, hunting, gathering, or some combination of them. They use barter instead of money. Connection:
The three basic economic questions
An economy has to allocate its resources and choose from different potential bundles of goods (What to produce), select from different techniques of production (How to produce), and decide in the end, who will consume the goods (For whom to produce). (1) What to produce? This problem involves selection of goods and services to be produced and the quantity to be produced of each selected commodity. Every economy has limited resources and thus, cannot produce all the goods. More of one good or service usually means less of others. (2) How to produce? This problem refers to selection of technique to be used for production of goods and services. A good can be produced using different techniques of production. By 'technique', we mean which particular combination of inputs to be used. Generally, techniques are classified as: Labour intensive techniques (LIT) and Capital intensive techniques (CIT). (3) For whom to produce? This problem refers to selection of the category of people who will ultimately consume the goods, i.e. whether to produce goods for more poor and less rich or more rich and less poor. Since resources are scarce in every economy, no society can satisfy all the wants of its people. Thus, a problem of choice arises. Connection: Traditional economy, command economy, market economy, mixed economy, Factor Market, Free Market
Capitalism
Capitalism is an economic system in which private individuals or businesses own capital goods. The production of goods and services is based on supply and demand in the general market—known as a market economy—rather than through central planning—known as a planned economy or command economy. Connection: Capitalists, Property rights, Intellectual property, Profit, Profit motive, Market competition, Public property
Capitalists
Capitalism is an economic system in which private individuals or businesses own capital goods. The production of goods and services is based on supply and demand in the general market—known as a market economy—rather than through central planning—known as a planned economy or command economy. Connection: Market economy or free-market economy, Profit motive, Property rights, Intellectual property, Circular flow model Economic freedom, Market competition, Private Property
Karl Marx/Communitst Manifesto
Communism is a political and economic ideology that positions itself in opposition to liberal democracy and capitalism, advocating instead for a classless system in which the means of production are owned communally and private property is nonexistent or severely curtailed. Connection: Authoritarian Socialism/Communism, Public works, Economic security, Economic stability or price stability, Economic Equity, .Public property
Economic freedom
Economic freedom means freedom of choice in employment, buying, selling, use of our time, and other decisions related to our economy.
Economic growth
Economic growth is an increase in the production of economic goods and services, compared from one period of time to another. It can be measured in nominal or real (adjusted for inflation) terms. Traditionally, aggregate economic growth is measured in terms of gross national product (GNP) or gross domestic product (GDP), although alternative metrics are sometimes used. Connection: Economic security, Profit, Transfer payments, Economic planning, Economic system
Economic system
Economic systems are the means by which countries and governments distribute resources and trade goods and services. They are used to control the five factors of production, including: labor, capital, entrepreneurs, physical resources and information resources. In everyday terms, these production factors involve the employees and money a company has at its disposal, as well as access to entrepreneurs, the people who want to run companies or start their own businesses. The physical materials and resources needed to run a business, along with the data and knowledge companies use to be successful, are also factors in production. Different economic systems view the use of these factors in different ways. Connection: Traditional economy, command economy, market economy, mixed economy, property rights, profit, circular flow model, product market, households, Capitalism, Communism, Socialism
Factor payments
Factor payments are the income people receive for supplying the factors of production: land, labor, capital or entrepreneurship. connection: Households, Firms, Product market, Factor/Resource market, Economic planning, Market competition, Price system, Factor /Resource market
Free enterprise system
Free enterprise, or the free market, refers to an economy where the market determines prices, products, and services rather than the government. Businesses and services are free of government control. Alternatively, free enterprise could refer to an ideological or legal system whereby commercial activities are primarily regulated through private measures. Connection: Market economy or free-market economy, Capitalism, Industrial Revolution, Capitalists, Economic freedom, Pillars of the Free Enterprise system (Key Characteristics)
Economic efficiency
Getting the maximum amount of output from the resources used to produce goods and services with the least amount of waste. Connection: Profit, Economic planning, Factor/Resource market, Price system
Households
Households purchase goods and services, which businesses provide through the product market. Businesses, meanwhile, need resources in order to produce goods and services. Members of households provide labor to businesses through the resource market. In turn, businesses convert those resources into goods and services. Connection: Households, Firms, Product market, Factor/Resource market, Economic planning, Market competition, Price system
Intellectual property
Intellectual property is a broad categorical description for the set of intangible assets owned and legally protected by a company from outside use or implementation without consent. An intangible asset is a non-physical asset that a company owns. Connection: Intellectual property, Private Property
Laissez-faire
Laissez-faire is an economic theory from the 18th century that opposed any government intervention in business affairs. The driving principle behind laissez-faire, a French term that translates as "leave alone" (literally, "let you do"), is that the less the government is involved in the economy, the better off business will be—and by extension, society as a whole. Laissez-faire economics are a key part of free market capitalism. Connection: Market economy or free-market economy, Capitalism, Industrial Revolution, Capitalists, Economic freedom
Factor payment
Payments made of scarce resources, or the factors of production in return for productive services. They are also categorized according to the services of the productive resources being rewarded. As wages are being paid for services of labor, interest is paid for the services of capital, rent is paid for the services provided by the land and profit is for the factor of payment to entrepreneurship. An economy is dependent on the production of goods and services, hence factors of production are required for the production of goods and services. They are broadly divided in the three factors of production Land, Labor, Capital. Land is the primary factor of production. Labor is the specific factor of production and payment is made in the form of wage. Capital is regarded as secondary factor of production as it can be manipulated by economic activity. Payment received would in the form of interest. Later Entrepreneurship was added as the fourth factor of production. It earns profit to the Entrepreneur. Factors of production are owned by households and they supply these factors of production to firms and in return earn wages, interest, rent and profit. Connection: Factor/Resource market, Product market
Economic stability or price stability —AKA--Price stability
Price of goods, services, and resources do not fluctuate significantly, either up or down, in short periods of time. Connection: Price System, Public works, Economic planning, Socialism
Private Property
Private Property is the resources and products owned by individuals or businesses. Connection: Property Rights, Public Property, Capitalism
Profit
Profit describes the financial benefit realized when revenue generated from a business activity exceeds the expenses, costs, and taxes involved in sustaining the activity in question. Any profits earned funnel back to business owners, who choose to either pocket the cash or reinvest it back into the business. Profit is calculated as total revenue less total expenses. Connection: Transfer payments, Property rights, Price system, Profit motive
Property rights
Property rights define the theoretical and legal ownership of resources and how they can be used. These resources can be both tangible or intangible and can be owned by individuals, businesses, and governments. Connection: Intellectual property, Private Property, Public property
Public property
Public property refers to resources and products owned by the government. Connection: Property Rights, Private Property, Socialism
Public works
Public works are a broad category of infrastructure projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community. They include public buildings (municipal buildings, schools, hospitals), transport infrastructure (roads, railroads, bridges, pipelines, canals, ports, airports), public spaces (public squares, parks, beaches), public services (water supply and treatment, sewage treatment, electrical grid, dams), and other, usually long-term, physical assets and facilities. Though often interchangeable with public infrastructure and public capital, public works does not necessarily carry an economic component, thereby being a broader term. Connection: Public property, Economic Equity, Economic security
Market competition (competition)
Rivalry among business for resources and customers. People everywhere compete for resources and products because they are scarce. Connection: Price system, Economic freedom, Economic growth, Free enterprise system
Socialism
Socialism is a populist economic and political system based on public ownership (also known as collective or common ownership) of the means of production. Those means include the machinery, tools, and factories used to produce goods that aim to directly satisfy human needs. Communism and socialism are umbrella terms referring to two left-wing schools of economic thought; both oppose capitalism, but socialism predates the "Communist Manifesto," an 1848 pamphlet by Karl Marx and Friedrich Engels, by a few decades. Connection: Socialism,Public works, Price system, Price system, Private Property, Public property, Economic Planning
Industrial Revolution
The Industrial Revolution was a period of major industrialization and innovation that took place during the late 1700s and early 1800s. The Industrial Revolution began in Great Britain and quickly spread throughout the world. Connection: Capitalists, Capitalism, Laissez-faire, Market economy or free-market economy, Factor payment
Economic security
The basic needs of every person should be met. Food, clothing, shelter, etc. Connection: Socialism, Public works, Economic planning
Circular flow model
The circular flow model demonstrates how money moves through society. Money flows from producers to workers as wages and flows back to producers as payment for products. In short, an economy is an endless circular flow of money. Connection: Households, Firms, Product market, Factor/Resource market, Economic planning, Market competition, Price system
Market economy or free-market economy
The free market is an economic system based on supply and demand with little or no government control. It is a summary description of all voluntary exchanges that take place in a given economic environment. Free markets are characterized by a spontaneous and decentralized order of arrangements through which individuals make economic decisions. Based on its political and legal rules, a country's free market economy may range between very large or entirely black market. Connection: Capitalism, Profit, Profit motive, Capitalists, Property rights, Economic freedom, Economic Equity
Firms
The main function of the firms is to offer goods. In order to do this, firms take the factors (land, labor, and capital) from households and convert products into goods and services that consumers need and want. The role of firms makes up the second part of the circular flow diagram. Connection: Households, Firms, Product market, Factor/Resource market, Economic planning, Market competition, Price system
Pillars of the Free Enterprise system (Key Characteristics)
The parts of the free enterprise system that support its function. Connections: Capitalism, Profit, Profit motive, Capitalists, Property rights, Economic freedom, Economic Equity
Specialization
The process in which business and people focus on producing one or a few parts of an entire product. Connection: Private Property, Product market
Product market
The product market is the marketplace where final goods or services are sold to businesses and the public sector. Focusing on the sale of finished goods, it does not include trading in raw or other intermediate materials. Connection: Households, Firms, Product market, Factor/Resource market, Economic planning, Market competition, Price system
Profit motive
The profit motive is the incentive for businesses to strive to maximize profits. Connection: Profit, Product market, Voluntary exchange
Voluntary exchange
Voluntary exchange is the act of willingly trading one item or service for another. Connection: Transfer payments, Property rights, Price system, Profit motive