eocn 206

government/households and firms

Centrally planned economies allocate resources based on decisions by-----while market economies answer these questions through decisions made by .

What incentives does a market system provide to encourage​ self-interest?

Financial reward.

What are the two main categories of participants in​ markets?

Firms and households.

rises/falls

Firms are likely to produce more of a good or service when its price ---and less of a good or service when its price .

Which participants are of greatest importance in determining what goods and services are​ produced?

Households.

how income is distributed

In the United​ States, who receives the goods and services produced depends largely on

centrally planned/market

Societies organize their economies in two main ways to answer the three questions of​ what, how, and who. A society can have a-----economy in which the government decides how economic resources will be allocated. Or a society can have a -----economy in which the decisions of households and firms interacting in markets allocate economic resources.

Evaluate the following​ argument: "Adam​ Smith's analysis is based on a fundamental​ flaw: He assumes that people are motivated by​ self-interest. But this​ isn't true. ​ I'm not​ selfish, and most people I know​ aren't selfish."

This statement is based on the misconception that following your​ self-interest and being selfish are the same thing.

The three economic questions that every society must answer are

What goods will be​ produced, how will they be​ produced, and who will receive the​ goods?

In the​ circular-flow diagram showing how a market system​ works,

income flows to households through factor markets.

In​ economics, the term capital refers to

physical,capital such as machinary, that is used to produce other goods.

The primary difference between product markets and factor markets is that

product markets are markets for​ goods, while factor markets are markets for factors of production—​labor, ​capital, natural​ resources, and entrepreneurial ability.

Adam​ Smith's invisible hand refers to

the process by which individuals acting in their own self−interest bring about a market outcome that benefits society as a whole.

Property rights are

the rights individuals or firms have to the exclusive use of their​ property, including the right to buy or sell it.