Economics Ch 2 Sec 2
economic system whose advantages include economic sufficiency, freedom, and growth
free market economy
who owns the factors of production and consumes goods and services in a free market system?
households
expectation that encourages people to behave in a certain way
incentive
self-interest is the _____ force in the free market
motivating
what is "the invisible hand of the market place"?
the interaction of buyers and sellers, motivated by self-interest and regulated by competition, all happens without a central plan
What are the characteristics of a free market system?
1. product market 2. monetary flow 3. physical flow 4. firms supply households with goods and services 5. households supply firms with land, labor, and capital 6. factor market
what is a market?
an arrangement that allows buyers and sellers to exchange goods and services
why do markets exist?
because none of us produces all the good and services we require to satisfy our needs and wants
what are the advantages of the free market?
economic efficiency~ as a self regulating system, a free market economy is efficient economic freedom~ free market economies have the highest degree of economic freedom of any economic system economic growth~ because competition encourages innovation, free markets encourage growth additional goals~ free markets offer a wider variety of goods and services than any other economic system
in a free market economy what do households and business firms use the market for?
exchanging money and products
competition is when...
producers in a free market struggle for the dollars of consumers
competition is the _____ force of the free market
regulating
in every transaction, the buyer and seller consider only their _____, which is ______
self-interest, personal gain
concentration of productive efforts of individuals and firms on a limited number of activities
specialization
struggle among producers for the dollars of consumers
competition
power of consumers to decide what gets produces
consumer sovereignty
what is specialization?
the concentration of the productive efforts of individuals and firms on a limited number of activities
