Econ ch.3

________________ is an economic system in which the means of production are privately owned and operated for a profit.

Capitalism

_______________ traces its philosophical roots to the work of 19th Century Philosopher Karl Marx.

Communism

_________________ is the subfield of economics that compares and contrasts the structure and performance of different types of economic organization.

Comparative Economic Systems

____________ refers to the freedom of an individual to choose to purchase (or to choose to not purchase) a good or service at a price determined in a free market.

Consumer sovereignty

Which of the following is a basic characteristic of Capitalism?

Economic decisions occur in markets

_________________ refers to the skills, education, and training which individuals in the labor force possess.

Human Capital

Alec Nove described ___________________ as "when the state uses influence, subsidies, grants, [and] taxes [to influence economic decisions], but does not compel."

Indicative Planning

________________ first said "From each according to his ability, to each according to his need."

Louis Blanc

command planning

an environment in which the government directly controls nearly all economic activity, and almost all production takes place within enterprises owned/controlled by the government.

indicative planning

an environment in which the government guides the behavior of individuals in regards to economic decisions by establishing policies which alter costs and benefits.

In a free market economy, households

are the ultimate consumers of most finished goods/services, are the primary suppliers of labor to firms, & do not behave as "rational decision makers."

One of the three primary types of "economic incentives" is "moral suasion," which could be described as

attempts to convince individuals to behave in a certain manner because doing so is "the right thing to do."

moral suasion

attempts to convince individuals to behave in a certain manner because doing so is the right thing to do

In the writings of Karl Marx, the "bourgeoisie" referred to the _______________ and the "proletariat" referred to the _______________.

business owners; working class.

In a typical modern economy, it is common for Government to have an impact on economic outcomes by

defining and enforcing property rights, regulating the behavior of business, and redistributing income.

feudalism

economic system in which land ownership is restricted to an aristocratic nobility.

Communism

economic system in which the means of production are collectively owned by all people in a society (without intervention by a government or state) ♣ A stateless, classless economic system in which all the factors of production are owned by the workers and people share in production according to their needs: "From each according to his ability, to each according to his need" (Louis Blanc in "The Organization of Work," 1839)

socialism

economic system in which the means of production are owned by the government.

capitalism

economic system in which the means of production are privately owned and operated for a profit.

four primary economic institutions

households, firms, markets, and government

Consider the costs of complying with bureaucratic regulations to economic decision makers in Singapore, Poland, and Venezuela. According to the results of the "Ease of Doing Business" study, of these three countries, such costs are:

lowest in Singapore and highest in Venezuela

three types of economic incentives

material rewards, moral suasion, and coercion.

material rewards

monetary rewards or direct increases in consumption from engaging in an activity.

natural assets

natural resources, including minerals, naturally occurring vegetation, water resources, topographical features, and available agriculturally productive land

On September 4, 2009, California Governor Arnold Schwarzenegger offered a $100,000 reward for anyone who could provide information leading to the arrest and conviction of the arsonists who set a wildfire in southern California which claimed the lives of two firefighters. In this situation, Gov. Schwarzenegger was attempting to obtain the desired information by

offering a material incentive.

The economy of the "former Soviet Union"

perhaps provides the best example of a large society with an economic system close to "pure socialism."

While playing baseball in their front yard, Wally and his little brother break the windshield of Ward's car. Wally and his brother concede that it is right for them to cover the costs of repairing the broken windshield. In taking this position, they are recognizing that Ward has a ______________ in regards to his car windshield.

right to restitution

market

the collection of all potential buyers and all potential sellers of a good or service.

produces assets

the currently available machines, factories, and inventories of finished goods available as industrial capital, as well as social capital such as transportation and communications infrastructure, and educational institutions

consumer sovereignty

the freedom for an individual to choose to purchase (or to not purchase) a good or services at a price determined in a free, unfettered market

economic resources or factors of production

the inputs such as factories, farms, stores, trucks, and equipment used to produce goods and services.

firms

the institutions which transform factors of production into finished goods/services

households

the most fundamental part of any economic system; ultimate consumers of most finished goods/services; primary suppliers of labor

right to restitution

the right to be compensated by another person when he damages your property or infringe upon your rights

right to control

the right to decide how to use your property

right to transfer

the right to obtain ownership of property from or relinquish ownership of property to another person.

Economic system

the rules and methods put in place by a society to answer the three fundamental economic questions of "What to produce?," "How to produce it?," and "For whom to produce it?"

human capital

the skills, education, and training which individuals in the labor force possess

Comparative economic systems

the subfield of economics that compares and contrasts the structure and the performance of different types of economic organization (i.e., different economic systems).

Bourgeoisie

the term which Karl Marx used to refer to business owners

Proletariat

the term which Karl Marx used to refer to the working class.

coercion

the use or threat of force or incarceration in order to obtain compliance.

three dimensions of Private Ownership of Property

(i) "right to control," (ii) "right to transfer," (iii) "right to restitution."

Adam Smith

18th century (1721-1790) Scottish economist, who wrote "An Inquiry into the Nature and Causes of the Wealth of Nations," in which he laid out the central arguments for why private ownership/control of resources and trade in free markets often result in desirable outcomes

Karl Marx

19th century (1818-1883) German philosopher, economist, and revolutionary, who wrote "Das Kapital" (1867, 1884, 1885) and co-wrote (with Friedrich Engels) "The Communist Manifesto" (1848)

_______________ specifies what different parties must do, whatever the external circumstances, and provides for enforcement or compensation for non-performance.

A Contract

Invisible hand

Smith's recognition that under certain conditions, the behavior of self-interested decision makers interacting in free markets leads to outcomes which are better for all parties. ♣ when the "invisible hand" is applicable, any possible alternative to the market outcome would be less desirable for some individuals in society. ♣ "free market forces" are the "invisible hand" that leads us to an outcome that is "efficient" (in that "total social surplus" is maximized).

Which of the following is an example of a "Natural Asset"?

The 1.7 trillion tons of coal reserves in the United States.

In which of the following countries do individuals enjoy the least amount of Economic Freedom?

Venezuela

The present economic system of the United Kingdom would be most accurately described as ______________________, while the present economic system of Spain ______________________.

a Mixed Economy; would also be most accurately described as a Mixed Economy.

government

a decision-making institution with the legal authority to impose restrictions or mandates on the behavior of other decision-makers (i.e., the ability to use legal coercion).

contract

a legal document which specifies what different parties must do, whatever the external circumstances, and provides enforcement or compensation for non-performance

Adam Smith was

an 18th century Scottish economist.

mixed economy

an economic system in which most factors of production are owned and controlled by individuals, while some factors of production are owned and controlled by the state (i.e., a system which contains some elements of capitalism and some elements of socialism).