Economics: Chapter 2
Command
another name for a centrally planned economy
Capitalism
another name for free market system
Market
any arrangement that allows buyers and sellers to exchange things
command economy
central government owns and controls all resources and means of production
True...... fiscal policy tends toward smaller government
conservative
Efficiency
focused on reducing waste
Free enterprise system
an economic system characterized by private or corporate ownership of capital goods
Three Economic Questions
1. What goods and services should be produced? 2. How should goods and services be produced? 3. Who consumes these goods and services?
Identify four reasons why gov. intervention in the economy has increased:
1. some needs are difficult to meet in the marketplace 2. to ensure basic needs are met 3. Protect property rights 4. To make sure exchanges are fair
until when did the government control all aspects of the economy in China?
1979
The united states economy is a mixed economy based on...
A free Market, but allowing some government intervention
Economic Transition
A period of change in which a nation moves from one economic system to another
Self- interest
Acting for one's own gain; a motivating force in the free market
A difference between the economies of China and North Korea is that...
China is privatizing state run businesses
Karl Marx
Father of Communism
Which economic system is the foundation of the United States economy?
Free Enterprise System
Nationalization
Full or partial control of private financial institutions is taken by the government, usually to avoid a financial crisis
Gov. intervention in a modern economy is useful because..
Gov. are more able to meet some needs and wants of society
What is the basis of capitalism?
Greed
Factor
Market of exchange in which firms purchase the factors of production from households
Is China completely a command economy?
NO! Market socialism, state capitalism
Traditional Economies
Relies on habit, customs, or ritual to decide the 3 economic questions, with little room for change
Competition
Struggle among producers for the dollars of consumers
What economic principle governs capitalism/free market?
Supply and Demand
Specialization
The concentration of the productive efforts of individuals and businesses on a limited number of activities
Factor Payment
The income people receive in return for supplying the factors of production
Rational Maximization
The innate desire to get as much for oneself as possible, greed
Product
The market of exchange in which households purchase goods and services from firms
Mixed Economy
a market-based economic system in which the government is involved to some extent
Socialism
a range of economic and political systems based on the belief that wealth should be distributed evenly throughout society
Authoritarian
a system in which the government limits individual freedoms and requires strict obedience from citizens
Profit
amount of money a business receives in excess of its expenses
Reasons for the failure of the Soviet Union
best land, labor, and capital were given to armed forces harsh effect on factories because they were left with lower quality resources. poor quality and shortage became then norm. Not always enough food to feed people
Freedom
buying what we can pay for, seeing work where we want, owning property, and owning own business
Adam Smith
described how markets function
Laissez Faire
doctrine that the gov should not intervene in the marketplace
According to Socialism...
government needs to use taxes to redistribute wealth. economic equality can only be achieved if economy is controlled by government
Incentive
hope of reward, or fear of penalty, that encourages a person to behave a certain way
What role does the government play in the U.S. economy?
keeps order, provides vital services, and promotes the general welfare
Problem in a free market system:
lack of regulation can lead to unfair business/legal interactions
Problem in centrally planned/command system:
lacks incentives
Factors of Product
land, labor, capital
True..... fiscal policy tends toward more government
liberal
Problem in the traditional economy:
little potential for growth or change
privatization
process of selling businesses or services operated by the government to individual investors
The U.S. gov. intervenes in the economy in order to...
promote the general welfare
security
reassuring people that goods and services will be available when needed
Invisible hand
regulating force of the marketplace
Why is capitalism considered to be " Highly Darwinian"?
survival of the fittest, only the strong will survive