Economics: Chapter 2

Command

another name for a centrally planned economy

Capitalism

another name for free market system

Market

any arrangement that allows buyers and sellers to exchange things

command economy

central government owns and controls all resources and means of production

True...... fiscal policy tends toward smaller government

conservative

Efficiency

focused on reducing waste

Free enterprise system

an economic system characterized by private or corporate ownership of capital goods

Three Economic Questions

1. What goods and services should be produced? 2. How should goods and services be produced? 3. Who consumes these goods and services?

Identify four reasons why gov. intervention in the economy has increased:

1. some needs are difficult to meet in the marketplace 2. to ensure basic needs are met 3. Protect property rights 4. To make sure exchanges are fair

until when did the government control all aspects of the economy in China?

1979

The united states economy is a mixed economy based on...

A free Market, but allowing some government intervention

Economic Transition

A period of change in which a nation moves from one economic system to another

Self- interest

Acting for one's own gain; a motivating force in the free market

A difference between the economies of China and North Korea is that...

China is privatizing state run businesses

Karl Marx

Father of Communism

Which economic system is the foundation of the United States economy?

Free Enterprise System

Nationalization

Full or partial control of private financial institutions is taken by the government, usually to avoid a financial crisis

Gov. intervention in a modern economy is useful because..

Gov. are more able to meet some needs and wants of society

What is the basis of capitalism?

Greed

Factor

Market of exchange in which firms purchase the factors of production from households

Is China completely a command economy?

NO! Market socialism, state capitalism

Traditional Economies

Relies on habit, customs, or ritual to decide the 3 economic questions, with little room for change

Competition

Struggle among producers for the dollars of consumers

What economic principle governs capitalism/free market?

Supply and Demand

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 the factors of production

Rational Maximization

The innate desire to get as much for oneself as possible, greed

Product

The market of exchange in which households purchase goods and services from firms

Mixed Economy

a market-based economic system in which the government is involved to some extent

Socialism

a range of economic and political systems based on the belief that wealth should be distributed evenly throughout society

Authoritarian

a system in which the government limits individual freedoms and requires strict obedience from citizens

Profit

amount of money a business receives in excess of its expenses

Reasons for the failure of the Soviet Union

best land, labor, and capital were given to armed forces harsh effect on factories because they were left with lower quality resources. poor quality and shortage became then norm. Not always enough food to feed people

Freedom

buying what we can pay for, seeing work where we want, owning property, and owning own business

Adam Smith

described how markets function

Laissez Faire

doctrine that the gov should not intervene in the marketplace

According to Socialism...

government needs to use taxes to redistribute wealth. economic equality can only be achieved if economy is controlled by government

Incentive

hope of reward, or fear of penalty, that encourages a person to behave a certain way

What role does the government play in the U.S. economy?

keeps order, provides vital services, and promotes the general welfare

Problem in a free market system:

lack of regulation can lead to unfair business/legal interactions

Problem in centrally planned/command system:

lacks incentives

Factors of Product

land, labor, capital

True..... fiscal policy tends toward more government

liberal

Problem in the traditional economy:

little potential for growth or change

privatization

process of selling businesses or services operated by the government to individual investors

The U.S. gov. intervenes in the economy in order to...

promote the general welfare

security

reassuring people that goods and services will be available when needed

Invisible hand

regulating force of the marketplace

Why is capitalism considered to be " Highly Darwinian"?

survival of the fittest, only the strong will survive