Econ Chapters 1&2 Vocab

Freedom of Enterprise

The freedom of firms to obtain economic resources, decide what products to produce with those resources, and sell those products in markets of their choice:

Freedom of Choice

The freedom of resource owners to dispose of their resources as they think best

The command system

known as socialism or communism, government owns resources, government and boards make decisions regarding long-term priorities

circular flow model

product market and resource market, the real flow and money flow

all gov does for laissez faire

protect private property from theft, provide contract inforcement

Economic systems

set of institutionalized arrangements, coordinating mechanism

Market System

some government control, most common system, private markets are dominant, self-interested behavior and market price

invisible hand idea

virtues of the market system: efficiency, incentive, and freedom. unity of private and social interest.

Coordination Problem

"Each day, central planners in the old Soviet Union were tasked with setting 27 million prices—correctly:"

Creative Destruction

"If you compare a list of today's most powerful and profitable companies with a similar list from 30 years ago, you will see lots of new entries:"

Invisible Hand

"It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest:"

Incentive Problem

"Managers in the old Soviet Union often sacrificed product quality and variety because they were being awarded bonuses for quantitative, not qualitative, targets:"

Mutually Agreeable

Economic transactions willingly undertaken by both the buyer and the seller because each feels that the transaction will make him or her better off

wide variety of goods

because the individuals wants are diverse

negatives of command system

command system is a failure, no adjustments for shortages or surplus of goods, Soviet Union, china

the use of money

common value that makes buying and selling simpler than with bartering

Market

An institution that brings buyers and sellers together

Competition

The presence in a market of independent buyers and sellers who compete with one another and who are free to enter and exit the market as they each see fit

Private property

The right of private persons and firms to obtain, control, employ, dispose of, and bequeath land, capital, and other property

Self Interest

What each individual or firm believes is best for itself and seeks to obtain

5 Fundamental Questions

What goods will be produced, how will they be produced, who will get them, how will the system accomodate change, and how will the system promote progress?

Differences in systems exist by

degree of decentralized use of markets and prices in decision making

barter

find a person who has something you want in return for something they want that you have

laissez faire capitalism

ideal economy, government doesnt interfere with economy