Chapter 3 Review

2 entities that make the majority of economic decisions in the free market (Please Have Potty Breaks!)

1. Private Households 2. Private Businesses

3 basic components of capitalism (People Find Liberty)

1. Property rights 2. Freedom of enterprise and competition in a market economy 3. Limited government.

3 types of property (Ronald's Icky Frog)

1. Real 2. Intellectual 3. Financial

2 market components in a circular flow model (Running Makes Pedestrians Muscular)

1. Resource market 2. Product market

3 main types of economics (Therese's Cash was Free)

1.Traditional 2. Command 3. Free enterprise

Entrepreneur

A person who undertakes the management and financial risk of an economic enterprise

Should a skilled laborer receive more reward than an unskilled laborer? Why or why not?

A skilled laborer ought to receive more reward than an unskilled laborer because the skilled laborer gives something to society that very few other people can. Robots can replace unskilled laborers and so if they want to keep their jobs, they ought not expect as much pay as skilled laborers.

State capitalism

A system in which the owner of much of the nation's capital is a powerful, centralized, apparatus called a collective state

System in which people are assigned jobs by a centralized authority

A totalitarian state with a command economy

Subsistence economy

An economic system that provides barely enough to keep a society alive

Capitalist

An individual who owns capital goods or owns a share of some business that produces goods

Labor

Any work that contributes to the production of goods and services

In a free market society, households have original economic control of all the factors of production. Can you explain why this is true?

Because households are the main consumers and sellers, they use all of the four parts or are part of the four parts and they choose to either help the economy or to not help the economy.

Is all labor purely physical? Give reasons for your answer.

Labor can be either physical or mental. A physical laborer could be someone like a construction worker and a mental laborer could be someone like an engineer whom the boss hired to come up with a new way to make a car engine run better and more efficiently.

In what sense can stocks, bonds, savings, accounts, etc., be counted as capital?

They are counted as capital in the sense that they are documents proving that their holder has a part in some sort of productive enterprise.

Why do entrepreneurs deserve the large economic rewards they sometimes receive?

They have taken a bold risk by investing a lot of money and time into a production of a product and with great risk comes great reward.

Private capitalism

Economic system in which the majority of the nation's capital is owned and controlled by private individuals and businesses

French Entrepreneur who was the first to produce quality gunpowder in the United States

Eleuthére Irénée du Pont or E. I. du Pont

Why is the labor of free people generally more productive than that of those who are not free?

Free people want to work whereas enslaved people do not want to work because they receive none of the profit.

Why is private capitalism more efficient than the other economic systems at supplying the goods and services that people want and need?

In private capitalism the people are guaranteed an opportunity to better themselves which causes them to want to work harder to move up in life. When they have more money they want more things and the more things they buy the more jobs the make and the cycle continues. They have a reason to work besides fear of punishment which is the case in many other governments.

What is the difference between the capitalism of the United States and the capitalism of China?

In the United States private individuals furnish most of the necessary capital (private capitalism) and in China the political state supplies most of the necessary capital (state capitalism).

4 factors of production ( Never Let Children Eat)

Natural resources, labor, capital, and entrepreneurship

Does the possession of natural resources guarantee wealth? Explain.

No because if one does not have enough capital to utilize these natural resources, no one can harvest and use the natural resources and no one can make a profit.

Mixed economy

System that combines a good measure of free enterprise in some areas with heavy state regulations in others

How have the abundant resources of the United States been influential in shaping the counrty's economy? Use example of all four factors of production in your answer.

The United States abundance of oil causes the price of gas to drop dramatically and this makes people want to own more cars. There are so many people in America who are willing to work in order to better their situation. America has a lot of capital due to the fact that so many people work hard and the entrepreneurs want to take risks that they think will benefit them.

Why does the invention and implementation of new technologies lag in command economies?

The government is so controlling that none of the people have an opportunity to work on what they want, instead they have to work on what the government tells them to work on. Lack of interest gives a lack of purpose and then there is no reason to invent something new in a hurry because there is no passion.

Explain how the ways in which the four factors of production are combined influence the prosperity of economies.

When a country has natural resources, an entrepreneur can take a chance trying to produce a new good. He has the capital to begin his business and he hires good labor to create his product. Due to the combination of all four factors, this man now has made the economy prosper because he sells his new merchandise to consumers and gives jobs to the labor.

a. Why is information sometimes considered the fifth factor of production? b. What happen when the four factors of production are not combined intelligently?

a. Efficient production depends upon the intelligent blending of the four factors of production. b. The producer who does not combine them intelligently puts his prosperity in danger.