Economics Chapter 2
Efficiency
Because resources are always scarce, societies try to maximize what they can produce using the resources they have
How were the Soviet Union and communist China similar?
Both suffered from severe economic problems as a result of central planning.
What role does competition among producers play in a free market?
It causes firms to produce what consumers want while moderating prices.
What distinguishes an authoritarian government from a democratic one?
It requires strict obedience from its citizens.
Freedom
Most people value the opportunity to make their own choices
Which of the following represents a difference between socialism and communism?
Socialism may allow some free market practices; communism does not.
free market economy
an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets. The choices made by individuals determine what gets made, how it is made, and how much people can consume of the goods and services produced.
firm
an organization that uses resources to produce a product or service, which it then sells
market
any arrangement that allows buyers and sellers to exchange thing
Which basic economic goal is most easily achieved in a traditional economy?
equity
A government hiring freeze would directly impact what aspect of the circular flow model of a mixed economy?
factor market
Equity
fairness
Which economic goal reflects the desire of individuals to make their own choices about owning property or becoming entrepreneurs?
freedom
China's economy is considered more mixed than North Korea's because China
has freer markets.
What is a disadvantage of central planning?
lack of economic efficiency
household
person or group of people living in a single residence
Innovation
process of bringing new methods, products, or ideas into use
specialization
the concentration of the productive efforts of individuals and firms on a limited number of activities
economic system
the structure of methods and principles a society uses to produce and distribute goods and services
Why do markets exist?
to allow people to exchange goods and services
Which is an example of why the U.S. government makes transfer payments?
to support retired people
Which of these is an example of restrictions that government places on the use of business property?
zoning laws
Which of the following is typical of a centrally planned economy?
government control
safety net
government programs that protect people experiencing unfavorable economic conditions
What are the three basic economic questions all societies must answer?
What goods and services should be produced, how should they be produced, and who will consume them?
How is a society's economic system defined?
by how it answers the three basic economic questions
How does innovation promote economic growth?
by introducing new goods and services that create new markets
Security
economic systems seek to reassure people that goods and services will be available when needed and that expected payments will arrive on time.
An economy that maximizes its scarce resources and can deliver the right goods in the right quantity to the right people at the right price has achieved which economic goal?
efficiency
traditional economy
elies on habit, custom, or ritual to answer the three basic economic questions
Governments have often become involved in market-based economies in order to
governments are more able than firms to meet some needs and wants of society.
Private property ownership and some government regulation of the economy are basic characteristics of which economic system?
mixed economy
According to the circular flow model of a market economy, firms buy factors of production from households, then
use these factors to produce goods and services.
The distribution of income received in the form of rent, wages, or interest is the main factor that determines
who consumes goods and services.
Growth
A nation's economy must grow with its population so it can provide jobs for the new people joining the workforce.
What is an argument that some analysts use to criticize government regulation?
It results in inefficiency.
Profit
the amount of money a business receives in excess of its expenses
factor market
the arena of exchange in which firms purchase the factors of production from households
product market
the arena of exchange in which households purchase goods and services from firms
Factor payments
the income people receive in return for supplying factors of production—land, labor, or capital