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