economics ch 2 & 3

Mixed Economies

Economies made up of characteristics from more than one economic system (the U.S. has a mixed economy)

Economic Goals of Society

Efficiency, freedom, security, equity, growth. All societies pursue each of these goals to some degree, but because of trade-offs due to scarcity, all of these economic goals cannot be achieved at once.

Risk-taking individual in search of profits

Entrepreneur

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.

Voluntary Exchange

The voluntary act of buyers and sellers freely and willingly engaging in market transactions. A voluntary transaction benefits both the buyer and the seller, or the exchange would never occur.

The phrase "the customer is always right" is most often associated with what term? A. entrepreneurship B. consumer sovereignty C. mixed economy D. regulatory government

B. consumer sovereignty

What gives people and businesses the opportunity to make their own decisions? A. profit motive B. economic freedom C. command economy D. free enterprise

B. economic freedom

Between 2007 and 2009, the U.S. went through a difficult economic period called the _____ _______

Great Recession

Mixed Economy / Modified Free Enterprise Economy

In this economy, people and businesses carry on their economic affairs freely, but they are subject to some government intervention and regulation.

_______ is a system in which government owns and controls some, but not all, productive resources.

Socialism

Characteristics of a Command Economy

• Central governing authority makes all major economic decisions • Sometimes the central authority is generous with the country's wealth and spreads it around for the benefit of all. In other cases, much of the country's wealth is plundered and kept for the exclusive benefit of its leader. • Most command economies severely limit private property rights. Because of this, the government owns most of the resources in the economy.

Characteristics of a Market Economy

• Characterized by a great deal of freedom • People can spend their money on the products they want most (casting dollar "votes" for those products) • ^ This tells producers which products people want most, thus helping answer the question of WHAT to produce. • Businesses are free to find the best production methods when deciding HOW to produce • The income that consumers earn and spend in the market determines FOR WHOM to produce. • Private ownership of resources • Described as being based on Capitalism (the United States, Australia, Canada, Great Britain, etc. are examples)

The way 19th-century Inuit divided the "spoils of the hunt" demonstrates a ________ economy

Traditional

Capitalistic Free Enterprise Economy

A capitalistic free enterprise economy has five important characteristics: economic freedom, voluntary exchange, private property rights, the profit motive, and competition.

What motivates people to work, save, and invest? A. government regulations B. a variety of goods C. incentives D. economic freedom

C. incentives

_______ motive is what drives people and organizations to improve their material well-being.

Profit

Market Economy

A market economy is one where the WHAT, HOW, and FOR WHOM questions are primarily answered by people who make supply and demand decisions in their own best interests. (United States, Canada, Great Britain include market economy)

Consumers can influence the production and sale of goods by __________. A. "voting" with their dollars B. saving their money C. reducing their spending habits D. paying off their debt

A. "voting" with their dollars

The dollar value of all final goods, services, and structures produced in a country in a year is known as _______ _______ _______. A. Gross Domestic Product B. Gross National Product C. franchise D. profit motive

A. Gross Domestic Product (GDP)

Which of the following is a disadvantage of a market economy? A. It sustains a high degree of uncertainty. B. It restricts personal freedom. C. It discourages creativity and new ideas for doing things. D. It does not allocate resources as efficiently as other types of economies.

A. It sustains a high degree of uncertainty.

How does the government operate in a free enterprise economy? A. It takes a "hands-off" approach to business. B. It tells businesses what to produce and what to sell. C. It interferes with business only when it is profitable. D. It establishes laws and rules to maintain competition.

A. It takes a "hands-off" approach to business.

In its role as protector of the American free enterprise system, one of the issues the government must deal with is _______ . A. environmental hazards B. weeding out corruption C. helping businesses get started D. overseeing communications

A. environmental hazards

Advantages and Disadvantages of a Command Economy

Advantages: • Can change direction drastically (The former Soviet Union went from a rural agricultural society in 1910 to an industrial nation in a few decades by emphasizing the growth of heavy industry) • Allows most citizens to receive some goods and services that they would otherwise not be able to afford. Disadvantages: • Leaders usually provide for themselves at the expense of the general population • Loss of the individual freedom to choose • Production of low-quality goods; workers only focus on filling their quotas

Advantages and Disadvantages of a Traditional Economy

Advantages: • Everyone knows which role to play. • Little uncertainty exists over WHAT to produce. Disadvantages: • Tends to discourage new ideas and new ways of doing things. • Lack of progress due to the lack of new ideas and new ways of doing things leads to economic stagnation and a lower standard of living than in other economic systems.

Advantages and Disadvantages of a Market Economy

Advantages: • High degree of individual freedom (people are free to spend their money on almost any good or service they choose) • Producers are free to decide what to produce, whom they want to hire, which inputs they want to use, and the way they want to produce • Adjusts gradually to change over time Disadvantages: • The market economy does not provide for everyone. Some people may be too young, too old, or too sick to earn a living or to care for themselves. • Market economy may not provide enough of some basic goods and service (For example, private markets do not adequately supply all of the roads, libraries, universal education, or comprehensive health care people would like to have. This is because private producers concentrate on providing products they can sell for a profit)

Private Property Rights

Allow people to own and control their possessions as they wish. People have the right to use or even abuse their property as long as they do not interfere with the rights of others.

Command Economy

An economic system in which a central authority makes the major decisions about WHAT, HOW, and FOR WHOM to produce. A command economy can be headed by a king, a dictator, a president, a tribal leader, or anyone else who makes the major economic decisions. (North Korea is an example)

Traditional Economy

An economy in which production is based on customs and traditions and economic roles are typically passed down from one generation to the next. (the Inuit of Northern Canada are an example)

Which of the following states an advantage of a traditional economy? A. Property rights are based on tradition. B. Creativity and original thought are rewarded. C. Everyone knows exactly what their function is. D. There's no bureaucracy to interfere with organizing the economy

C. Everyone knows exactly what their function is.

What kind of economy offers uniformity in wages regardless of individual productivity? A. all economies B. traditional economies C. command and socialist economies D. market and free-enterprise economies

C. command and socialist economies

The three synonymous terms to describe the U.S. economic system are free enterprise, capitalism, and _____ ______. A. limited role of government B. competition C. free market D. economic freedom

C. free market

Who ultimately determines the success of a product? A. the government B. the business producing the product C. the consumer D. the store selling the product

C. the consumer

In a ________ economy, production questions are answered by the government.

Command

Ruler of the market in determining goods and services produced

Consumer

Which statement describes a disadvantage of a command economy? A. Items tend to be produced solely for the sake of profit. B. It cannot "change direction" easily if the need arises to do so. C. It does little to help the less advantaged obtain the goods and services they need. D. Nothing stops the government from producing things that people don't need or want.

D. Nothing stops the government from producing things that people don't need or

How is the principle of "There's No Such Thing As A Free Lunch" illustrated in a socialist economy? A. Socialist economies tend to collapse when they become too large. B. The marketplaces in a socialist economy are free for anyone to enter. C. Socialist policies offer advantages to the wealthy at the expense of those less well-off. D. Socialist economies tend to offer extensive government services but have high tax rates.

D. Socialist economies tend to offer extensive government services but have high tax rates.

Something that stimulates activity among forces or people. A. regulator B. entrepreneur C. mixed economy D. catalyst E. consumer

D. catalyst

The struggle among sellers to attract consumers by offering the best products at the lowest prices is known as _________. A. voluntary exchange B. profit motive C. property rights D. competition

D. competition

When an economy is capitalist and has free markets, it can be said that the economy is based on ______ ________

Free Enterprise

One of the characteristics of the U.S. economy is the ________ role of the government.

Limited

In a _______ economy, questions of what, how, and for whom to produce are answered by the buying and selling activity of individuals.

Market

Economic system with combination of command, traditional, and market economies

Mixed Economy

______ _______ rights allow people to own and control their possessions as they see fit, as long as it does not interfere with the rights of others.

Private property

Role of national government in preserving marketplace competition

Regulator

Societies embrace various economic systems to deal with the fundamental problem of ______

Scarcity

Characteristics of a Traditional Economy

• Nearly all economic activity stems from ritual, habit, or custom. • Habit and custom dictate most social behavior. • Individuals are generally not free to make decisions on the basis of what they want or would like to have. Instead, their roles are defined by the customs of their elders and ancestors.

Capitalism vs. Socialism

• The main difference between capitalism and socialism is the extent to which the government controls the economy. • Socialist governments strive to eliminate economic inequality by tightly controlling businesses and distributing wealth through programs that benefit the poor, such as free education and healthcare. Capitalism, on the other hand, holds that private enterprise utilizes economic resources more efficiently than the government and that society benefits when the distribution of wealth is determined by a freely-operating market.