Economics Ch. 2 Review

List 5 basic economic goals guiding society's choice of systems

1) efficiency 2)freedom 3)security and predictability 4) equity 5)growth and innovation

Four main kinds of economies

1) traditional 2) market 3) centrally planned 4)mixed

Government intervention dominates in some mixed economies. How is government intervention less extreme in China's economy?

It is moving away from central planning, and one quarter of all enterprises are at least partly owned by individuals.

Why do the world's national economies fall inside a continuum?

No national economy today relies completely on either central planning or the free market

What is specialization?

concentration of productive efforts of individuals and firms on a limited number of activities

How does free enterprise differ from laissez faire?

Under a free enterprise system, the government plays a limited role in the marketplace; under pure laissez faire, the government would play no role.

Economic question answered by basic social values and goals

Who consumes which goods and services?

What is a collective?

a large Soviet farm leased by the state to groups of peasant farmers

In the central economic planning in the former soviet union what is the role of central government?

a) control land, labor and capital b) decide what, how much, and how to produce and distribute goods and services

In the central economic planning in the former soviet union what are positive and negative effects on consumers?

a) positive-luxuries were affordable b)negative-shortages and poor quality of goods and housing

What is a market?

an arrangement that allows for exchange among buyers and sellers

What is an incentive?

an expectation that encourages people to behave in a certain way

What is communism?

political system characterized by a centrally planned economy with all economic and political power resting with the central goverment

What is consumer sovereignty?

power of consumers to decide what gets produced

An economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services is a ____

traditional economy

What are the Roles and Functions in a Free Market Economy of competition

regulates production, buying and selling

What is an authoritarian?

requiring strict obedience to an authority, such as a dictator

What is a profit?

financial gain made in a transaction

What are the Roles and Functions in a Free Market Economy of self-interest

motivates consumers and producers

What is socialism?

social and political philosophy advocating equal distribution of wealth throughout society

Government intervention dominates in some mixed economies. How does government intervene in North Korea's economy?

Government owns all property and economic output; there is some private production.

What does it mean to privatize an industry?

An industry is privatized when ownership is transferred from the state to private individuals, thus encouraging competition

The market system dominates in some mixed economies. Why is Hong Kong one of the freest markets?

As a special administrative region of China, Hong Kong is being allowed to continue under the free economic system introduced during British rule.

Why is China said to have a transition economy?

China is in the process of changing or making a transition, from central planning to a market-based economy

The market system dominates in some mixed economies. Where is the world's freest market located?

Hong Kong

In the central economic planning in the former soviet union what are positive and negative effects on industry?

a)positive-jobs and wages were guaranteed b) negative-lack of worker incentive and innovation; lower quality resources for consumer goods

In the central economic planning in the former soviet union what are the positive and negative effects on agriculture?

a)positive-workers were guaranteed employment and income b)negative-lack of incentives to produce more or better crops; country could not feed its population

In the central economic planning in the former soviet union what is the main goal?

building national power and prestige

An economic system in which the central government makes all decisions and production and consumption of goods and services is a ___

centrally planned economy

When people earn income for supplying land, labor, capital, or entrepreneurship, they receive ___

factor payments

an encyclopedia entry illustrating how a hunter-gatherer group collects and shares food resources is describing that society's ____

economic system

Government intervenes in market economies because some needs and wants of mod- ern societies are hard to answer in the marketplace or may be answered more fairly for all mem- bers of society with government involvement. What needs and wants are answered more fairly with government involvement?

education, health care, employment, mass transit

What is a heavy industry?

industry that requires a large capital investment and that produces items used in other industries

When voluntary exchanges in the markets determine decisions on production and consumption, the society's economic system is a ___

market economy

What is a factor market?

market in which firms purchase the factors of production from households

What is a product market?

market in which households purchase the goods and services that firms produce

Government intervenes in market economies because some needs and wants of mod- ern societies are hard to answer in the marketplace or may be answered more fairly for all mem- bers of society with government involvement. What needs and wants are hard to answer?

national defense, roads and highway systems, conservation, environmental protection

What are the Roles and Functions in a Free Market Economy of Individuals and Businesses

own factors of production; produce and buy what they want

What are the Roles and Functions in a Free Market Economy of Households

own land, labor, and capital; consume goods and services

People who receive disaster relief from the government after a flood are benefiting from an economic system that provides a ___

safety net

Economic concept necessitating choices and priorities in any society

scarcity- resources are limited

What are the Roles and Functions in a Free Market Economy of Firms

use resources to produce products , then sell them