Chapter 2 Economics Test

What is specialization?

A situation in which people concentrate their efforts in the areas in which they have an advantage.

What is a centrally planned economy?

A system in which the society's leaders, usually members of the central government, make all economic decisions

What is authoritarianism?

A system which requires absolute obedience to authority

What is voluntary exchange?

A trade in which the parties involved anticipate that the benefits will outweigh the cost.

What is a global economy?

All the economic interactions that cross international boundaries

What are the advantages of a traditional economy?

1. Clearly answers the three economic questions 2. Ensures survival 3. Methods of production are the same as they have always been 4. Systems of distribution are determined by custom and tradition 5. Little disagreement over economic goals and roles

What are the advantages of a market economy?

1. Economic and political freedom 2. Profit

What are the disadvantages of a market economy?

1. Has no mechanism for providing public goods and services, such as national defense, because it would not be profitable from a strictly economic viewpoint 2. Cannot provide security to those who, because of sickness or age, cannot be economically productive 3. Cannot prevent the unequal distribution of wealth

What is a disadvantage of a command economy?

1. Inefficient 2. Lack of competition 3. Limited price control 4. Unable to respond to consumer preferences

What is an advantage of a command economy?

1. Low level of inequality 2. Low level of unemployment 3. Prevents abuse of monopoly power 4. Common good value higher than profit priority

What are the characteristics of a market economy?

1. Private property in markets 2. Limited government involvement 3. Voluntary exchange in markets 4. Competition and consumer sovereignty 5. Specialization and markets

What are the disadvantages of a traditional economy?

1. Resist change 2. Less productive due to not adopting new approaches and people having the "wrong" jobs 3. Prevent people from doing the jobs they want to do or are best suited to do 4. Much lower standard of living

What is a circular flow model and what does it represent?

A circular flow model visualizes how all interactions occur in a market economy. The model represents the two key economic decision makers in a market economy - households, which are made up of individuals like you, and businesses. It also shows the two markets were households and businesses meet - that for goods and services, and that for resources.

What is profit?

A financial gain from a business transaction.

What is communism?

A more extreme form of socialism in which there is no private ownership of property and little or no political freedom

What is the Communist Manifesto?

A novel written by Karl Marx and Friederich Engels, explained the goals of communism, published in 1848.

What is Das Kapital?

Also called Capital, A Critique of Political Economy is a foundational theoretical text in materialist philosophy, economics and politics by Karl Marx. Marx aimed to reveal the economic patterns underpinning the capitalist mode of production in contrast to classical political economists such as Adam Smith, Jean-Baptiste Say, David Ricardo and John Stuart Mill. While Marx did not live to publish the planned second and third parts, they were both completed from his notes and published after his death by his colleague Friedrich Engels. Das Kapital is the most cited book in the social sciences published before 1950.

What is a market economy?

An economic system based on individual choice, not government directives.

What is a traditional economy?

An economic system in which families, clans, or tribes make economic decisions based on customs and beliefs that have been handed down from generation to generation

What is socialism?

An economic system in which the government owns some or all of the factors of production

What is a mixed economy?

An economic system that has elements of traditional, command, and market economies and is the most common type of economic system

What is capitalism?

An economic system that is based on private ownership of the factors of production.

What is a command economy?

An economic system where the government decides what goods and services Will be produced, how they will be produced, and how they were distributed.

What is a market?

Any place or situation in which people buy and sell resources and goods and services.

What are the types of mixed economies?

Authoritarian socialism (communism), capitalism, and democratic socialism 1. United States - capitalism leaning 2. France - midway between socialism and capitalism 3. Sweden - socialism meaning

Why has Karl Marx's ideas on economics become disliked?

Because of the way communist economies worked in practice and the eventual collapse of communism in the early 1990s, Marx's ideas have fallen into disfavor.

What would be an example of a mixed economy?

Brazil, Mexico, and Canada

Who is Karl Marx? Explain.

Father of Communism, wrote Communist Manifesto and Das Kapital, thought religion should be outlawed because it was the "optiate of the masses..."

What would be an example of globalization in a business partnership?

Ford motor company of the United States and Mazda motor corporation of Japan

Who is Thomas More?

Lawyer, author of Utopia, chancellor to Henry VIII, and martyred for his faith

What type of economy is the United States based on?

Mixed economy

What is an example of a modern day command economy?

North Korea

How have the Kavango people been forced to change their traditions and culture due to changing types of economies?

The Kavango People in Namibia in Southern Africa have lived as subsistence farms (subsistence farms grow just enough to feed their own families) for centuries. Modern telecommunications have bombarded the Kavango with images of the world beyond their homeland. This caused many young Kavango to want something more than the life of subsistence farming. Thousands left their homelands for the cities and the old ways of farming began to change. The vast majority of the Kavango people still make a living from subsistence farming, however a few have turned to commercial farming (where they grow crops not for their own use, but for sale).

What is competition?

The effort of two or more people, acting independently, to get the business of others by offering the best deal.

What is consumer sovereignty?

The idea that because consumers are free to purchase what they want and to refuse products they do not want, they have the ultimate control over what is produced.

What is a product market?

The market for goods and services

What is a factor market?

The market for the factors of production - land, labor, capital, and entrepreneurship

What are private property rights?

The rights of individuals and groups to own property.

What is an economic system?

The way a society uses its scarce resources to satisfy its people's unlimited wants

What does it mean to privatize?

To change from government or public ownership to private ownership

What does it mean to nationalize?

To change from private ownership to government or public ownership