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the structure of methods and principles that a society uses to produce and distribute goods and services.

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economic system

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*What goods and services must be produced? *How should these goods and services be produced? *Who consumes these goods and services?

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What are the three economic questions that every society must answer?

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their values

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Societies answer the three economic questions based on?

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making the most of the resources

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What is the economic goal: economic efficiency

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freedom from government intervention in the production and distribution of goods and services

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What is the economic goal: economic freedom

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assurance that goods and services will be available, payments will be made on time, and a safety net will protect individuals in times of economic disaster

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What is the economic goal: economic security and predictability

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fair distribution of wealth

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What is the economic goal: economic equity

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innovation leads to economic growth, nd economic growth leads to a higher standard of living

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What is the economic goal: economic growth and innovation

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the income people receive in return for supplying factors of production

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factor payment

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the amount of money a business receives in excess of its expenses

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profit

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a set of government programs that protect people who face unfavorable economic conditions

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safety net

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level of economic prosperity

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standard of living

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the process of bringing new methods, products, or ideas into use

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innovation

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rely on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it.

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traditional economies

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traditional economy

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Which economic system revolves around the family unit?

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traditional economies

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In these economies, agricultural and hunting practices usually lie at the center of people's lives, laws and religious beliefs?

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traditional economy

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Decisions of this economy are based on customs and beliefs? The good of the group will always come before individual desires.

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little disagreement over goals, roles methods of production, distribution determined by custom

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What are the advantages of a traditional economy?

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as result of resistance to change, less productive do not use new methods; people not in jobs they are best suited for low productivity results in low standard of living

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What are the disadvantages of a traditional economy?

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*traditional *market *command *mixed

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What are the four economic systems?

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any arrangement that allows buyers and sellers to exchange things

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market

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agricultural and hunting practices

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What are the chief economic activities in a traditional economy?

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the concentration a of the productive efforts of individuals and businesses on a limited number of activities

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specialization

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an economic system in which decisions on the three economic questions are based on voluntary exchange in markets

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free market economy (capitalism)

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Markets exist because none of us produces all the goods and services we require to satisfy our needs and wants

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Why do markets exist?

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Free market economy

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This economic system is driven by the choices of consumers and producers, consumers spend money, go into business, sell their labor as they wish, and producers decide how to use their resources to make the most money.

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free market economy

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In this economic system, consumers, producers benefit each other when they act in self-interest?

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a person or group of people living in a single residence

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household

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an organization that uses resources to produce a product or service, which it then sells

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firm

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the arena of exchange in which firms purchase the factors of production from households land, labor, capital, entrepreneurship

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factor market

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the arena of exchange in which households purchase goods and services from firms includes all purchases by individuals from businesses

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product market

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A

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Each society determines who will consume what is produced based on? A. its unique combination of social values and goals B. the amount of factor payments C. its needs and wants D. economic equity

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B

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To improve its standard of living, a nation's economy must? A. remain stable B. growth through innovation C. reach economic equity D. allow the central government to make economic decisions

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firms transform inputs, or factors of production, into outputs, or goods and services

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What are the roles of firms in the free market economy?

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an individual's own personal gain

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self-interest

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the hope of reward or fear of penalty that encourages a person to behave in a certain way

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incentive

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the struggle among producers for the dollars of consumers

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competition

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a term coined by Adam Smith to describe the self-regulating nature of the marketplace

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invisible hand

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Adam Smith

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Who published a book tiltled, "The Wealth of Nations?"

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self-interest

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What is the motivating force in the free market?

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competition

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What is the regulating force of the free market?

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competition causes firms to produce more and moderates their desire to raise prices. As a result, consumers get the products they want at prices that more closely reflect the cost of producing them

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Why is competition important in a free market?

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the power of consumers to decide what gets produced

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consumer sovereignty

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*As a self-regulating system, a free market economy is efficient *because competition encourages innovation, free markets encourage growth *free markets have the highest degree of economic freedom of any economic system *free markets offer a wider variety of goods and services than any other economic system

answer

What are the advantages of the free market?

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C

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Why do people need to buy and sell goods and services? A. people need to buy and sell goods to make a profit B. people buy and sell to maintain a competitive society C. no one is self sufficient D. people need to provide the market with goods and services

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D

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What factors create the phenomenon of the "invisible hand?" A. incentives and efficiency B. specialization and efficiency C. competition between firms D. competition and self-interest

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they are all markets

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What do a farmers' market, a sporting goods store, the New York Stock Exchange, and the sign you posted on your community bulletin board advertising baby-sitting services have in common?

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individuals

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Who answers the three key economic questions in a free market economy?

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an economic system in which the government makes all decisions on the three key economic questions

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centrally planned economy

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another name for a centrally planned economy

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command economy

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a range of economic and political systems based on the belief that wealth should be distributed evenly throughout a society

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socialism

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*a political system in which the government owns and controls all resources and means of production and makes all economic decisions *a centrally planned economy *believe that a socialist society can only come about after a violent revolution are authoritarian

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communism

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*describes a form of government that limits individual freedoms and requires strict obedience from its citizens *does not allow individuals freedom of judgment and action

answer

authoritarian

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centrally planned economy

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In which economic system does the government decide what to produce, how much to produce, and how much to charge?

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A

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In a socialist country? A. central planning is unnecessary B. the government often owns major industries, such as utilities C. an authoritarian government controls the economy D. economic equality is not important

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B

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Which of the following is an advantage of a centrally planned economy? A. the system's bureacracies are small and flexible B. the system can work quickly to accomplish specific goals C. innovation is well rewarded D. consumers' needs are well met

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*Scottish social philosopher *Wrote the "Wealth of Nations" *Self-interest *Incentives *Competition *The Invisible Hand

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Adam Smith

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centrally planned economies

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What economic system operates in direct contrast to free markets? They oppose private property, free market pricing, competition, and consumer choice?

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Bureaucrats tell firms what and how much to produce, and provides the supplies and workers to meet production goals

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How is a centrally planned economy organized?

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centrally planned economy

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In this economy, the government owns land, labor, and capital?

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(highest value is equality *believe that equality exists only when political equality is coupled with economic equality *equality is only possible when the public controls the centers of economic power *can be democracies *requires high degree of central planning to achieve economic equality

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Socialists

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*influenced some societies to adopt command economies *wrote the "The Communist Manifesto" and "Das Kapital" *stressed the conflict between labor and capital *believed that labor was the source of all value *argued that factory owners used workers as a resource and exploited the workers by keeping wages low to increase profits

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Karl Marx

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North Korea

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What are some examples of command economies today?

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*illustrates how interactions occur in a market *represents the two key decision makers: households, businesses *shows the two markets where households and businesses meet *shows how market economies operate the outside arrow shows flow of money *inside arrows show flow of resources and products

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Circular Flow Model

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*central planners do not understand local conditions *workers have little motivation to be productive or conserve resources *artifically low prices lead to shortages *people sacrificed to carry out centrally planned policies

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What are some disadvantages of command economies?

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*the doctrine that government generally should not intervene in the marketplace

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laissez faire

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property that is owned by individuals or companies, not by the government or the people as a whole

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private property

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a market-based economic system in which the government is involved to some extent

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mixed economy

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mixed economies

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What is the most common type of economic system, has elements of traditional, command, and market systems?

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*traditional: all members of family help bring in harvest *command: affected by government-public school, roads, Social Security *Market: own land, sell their products in competitive market

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Explain how family farming in the U.S. is a mixed economy?

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*Mixed economy based on the principles of the free market *It is characterized as a free enterprise system

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What type of economic system is the U.S.?

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a range with no clear divisions

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continuum

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period of change in which an economy moves away from a centrally planned economy toward a market based economy

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transition

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*governments create laws *government protects property rights and enforces contracts *governments encourage innovation through patent laws

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What are the limits of laissez faire?

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a period of change in which a nation moves from one economic system to another

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economic transition

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the process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace

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privatization

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an economic system in which investments in firms are made in a free market by private decision rather than by state control

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free enterprise system

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mixed economy

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In this economic system, the market is free but has a certain degree of government control?

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The government: *provides national defense and public education *protects private property *ensures fair exchanges in the marketplace *buy labor in the factor mrket to have employees help run its programs *purchase goods and services from firms in the product market *collect taxes from both households and firms

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In a mixed economy, what is one reason the government plays a role in the economy?

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government purchases goods and services from firms in the product market

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How are governments involved in the product market?

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represents one of the world's freest markets

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What kind of enonomy is Hong Kong?

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D

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The United States economy is a mixed economy? A. based on the principle of a traditional economy, but allows some government intervention B. based on the principles of a centrally planned economy, with limited government intervention C. based on the principles of the free market, and allows no government intervention D. based on the principles of the free market, but allows some government intervention

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C

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Government intervention in a modern economy is useful because? A. the needs and wants of modern society are always met by the marketplace B. the mrketplace has many incentives to create public goods such as parks and libraries C. governments are able to provide some goods and services that the marketplace has no incentive to produce D. the marketplace provides all of its own laws

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B Markets drive the free enterprise system allowing for a higher standard of living than in most other kinds of economies.

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In the study of economics, the definition of a market is? A. the concentration of the productive efforts of individuals and firms on a limited number of activities. B. an arrangement that allows buyers and sellers to exchange things. C. a place to buy groceries and other household items. D. a place where producers display their wares for sale.

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A Markets exist because no one is self-sufficient.

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Why do markets exist? A. because people are not self-sufficient and need goods and services produced by others B. because people are naturally competitive C. because everyone enjoys trade and business D. because most people are entrepreneurial

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A Competition regulates prices; self-interest regulates kinds and amounts of goods and services produced.

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According to Adam Smith, what are the two factors that regulate a marketplace? A. competition and self-interest B. elected officials and voters C. the size of the town and the number of customers D. natural resources and manufacturing

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C Firms supply households with the things they want and need in the form of goods and services.

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What is the purpose of a firm? A. to provide competition for households B. to use natural resources wisely C. to produce goods and services D. to direct a centrally planned economy

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C What consumers buy in the marketplace guides manufacturers to what to produce

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The invisible hand is? A. the concentration of the productive efforts of individuals and firms on a limited number of activities. B. an organization that uses resources to produce a product. C. a term economists use to describe the self-regulating nature of the marketplace. D. the market in which households purchase the goods and services that firms produce.

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B In a free market, households are consumers because they exchange the factors of production for the goods and services provided by firms.

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A household is a person or a group of people who live in the same residence. In economics, households are also? A. considered to be firms that product products. B. consumers of goods and services. C. involved in specialization. D. called "the invisible hand."

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C Competition keeps prices on popular and needed goods and services from rising too high as to be out of reach for average consumers.

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The struggle among producers for consumer dollars is? A. incentive. B. self-interest. C. competition. D. laissez faire.

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A Both grocery stores compete for the business of consumers in the town

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Which of the following is an example of competition in the marketplace? A. A small town has only two grocery stores, which are located one block away from each other. B. Two neighbors buy the same model of automobile. C. Two farms are separated by a stream that provides water for the cattle raised on each farm. D. Two high schools have excellent football teams.

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D Rather than the government directing the kinds and amounts of goods and services produced, consumers guide manufacturers and sellers to produce the products they want and need by what they buy and also by what they don't buy.

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Consumer sovereignty is? A. the concentration of the productive efforts of individuals and firms on a limited number of activities. B. a person or group of people living off the land. C. a market where consumers purchase goods and services collectively. D. the power of consumers to decide what gets produced.

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A Product manufacturers use incentives, such as coupons, to get consumers to buy their products.

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Something, such as a reward or bonus, that encourages people to behave in a certain way could be called? A. an incentive. B. self-interest. C. competition. D. laissez faire.

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C When the public controls the economy, it can place restrictions on how wealth is distributed.

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A social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society is? A. dictatorship. B. authoritarianism. C. socialism. D. sovereignty.

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B Collectives were based on the idea that group farming would be more efficient, but under the Communist system of established quotas and distribution, individuals had little incentive to produce more or better crops.

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In the Soviet Union, a collective was a? A. group of consumers who buy products directly from the government. B. large farm leased from the state to groups of peasant farmers. C. grocery store owned by its members. D. group of farmers who work on a farm owned by a private firm or family.

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C Centrally planned or command economies are commanded by central governments to and produce specific goods and services in specific amounts.

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Who owns the land and the capital in a centrally planned economy? A. consumers B. firms C. government D. households

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B By definition, a centrally planned economy has no input from consumers as to their needs and wants; everything is planned by the government.

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What is a major disadvantage of a centrally planned economy? A. It offers too many choices for consumers. B. It cannot meet consumers' needs and wants. C. It has no control over which goods and services are provided. D. Its military forces are too weak to be effective.

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B An infusion of money from the government (or another kind of investor for that matter) can help most businesses begin, but then a business needs the creative thinking and technology of its workers to grow it.

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What is one benefit of a centrally planned economy? A. it allows entrepreneurs to function freely B. it provides a jumpstart to some industries C. it offers lots of incentives for workers D. it produces more food

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C Again, centrally planned or command economies are commanded by central governments to and produce specific goods and services in specific amounts.

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Who answers the key economic questions in a centrally planned economy? A. consumers B. firms C. government D. households

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D Central planning in soviet countries caused problems such as poor quality, serious shortages of nonpriority goods and services, and diminishing production.

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Which of the following was NOT a priority of Soviet planners? A. space program B. defense industry C. heavy machinery manufacturing D. providing a variety of luxury items for all consumers

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D Examples of heavy industries include the chemical, steel, and heavy machinery industries.

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Industry that requires a large capital investment and that produces items used in other industries is known as? A. a light industry. B. the auto industry. C. the shipping industry. D. heavy industry.

question

A Communist governments decide what and how much industries and farms will produce.

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Communism is a(n)? A. political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government. B. social and political philosophy whose chief economic goals include economic efficiency and economic growth and innovation. C. political system in which power rests in the hands of the people. D. economic system based on free enterprise.

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A Dictatorship governments usually spend much of their budgets in maintaining a large army to ensure obedience at the expense of domestic programs that would help the people.

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Authoritarian means? A. requiring strict obedience to an authority, such as a dictator. B. ruling authority is granted to individuals by the government. C. requiring acknowledgment of authorship. D. ruling by aristocracy.

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B It's impractical for the marketplace to provide for roads, so that role is fulfilled by the government.

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Which of the following goods is provided by the U.S. government rather than by individuals? A. food B. roads C. steel D. computers

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A The doctrine of laissez faire has some limits because no marketplace can satisfy all of a society's needs and wants.

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Laissez faire is? A. the doctrine that states that government generally should not intervene in the marketplace. B. a period of change in which an economy moves away from a centrally planned economy toward a market-based system. C. a social and political philosophy characterized by its fair distribution of wealth. D. a philosophy that states that government should control the marketplace.

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B The 5th amendment to the U.S. Constitution provides protection against the government seizing private property without proper compensation.

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Property owned by individuals or companies, not by the government or the people, as a whole is? A. public property. B. private property. C. mixed property. D. communal property.

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C Countries' economies range on a continuum with totally controlled by government on one end and nearly totally controlled by individuals and privately owned firms on the other.

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A Continuum is a? A. historical timeline. B. process to track progress of production. C. range with no clear divisions. D. schedule.

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A China is selling more of its state-owned firms to individuals and private firms.

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To sell state-run firms to individuals is to? A. privatize. B. individualize. C. collectivize. D. remarket.

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B Hong Kong has very few limits imposed by government.

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With "centrally planned" on the left and "free market" on the right, which of the following countries' economic systems would be farthest to the right on the Continuum of Mixed Economies? A. United Kingdom B. Hong Kong C. South Africa D. North Korea

question

C Government does subsidize some businesses but not for the reason of keeping product prices low; mostly governments subsidize businesses because they provide a public need that otherwise might not be met.

answer

Which of the following is NOT a main priority of the U.S. government? A. creating laws that protect property rights and enforce contracts B. providing for national defense C. subsidizing businesses to keep product prices low D. providing education for all children

question

C The United States' economic system is an example of a free-enterprise system.

answer

An economic system characterized by private or corporate ownership of capital goods; investments that are determined by private decision rather than by state control; and determined in a free market is? A. communism. B. mixed market economy. C. free enterprise. D. free trade.

question

A The marketplace cannot meet all the needs and wants of all its members.

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Why do governments fulfill some of society's needs, such as education, health care, and mass transit? A. so that all members of the society can participate B. so that services that can not be afforded by the private sector are made available. C. because those needs are always fulfilled in a centrally planned economy D. because individuals and companies are not affected by those needs

question

D With each passing year, China has more privately owned businesses.

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Which of the following countries is in transition from a centrally planned economy to a market-based system? A. Singapore B. United States C. France D. China

question

B A centrally planned economy is run by a central government and does not allow for free enterprise.

answer

A centrally planned economy is? A. always the most efficient economic system. B. an economic system in which the government makes all the decisions about production and consumption of goods and services. C. a form of free enterprise with minimal government involvement. D. an economic system that has no government involvement.

question

D Each system answers the question of the distribution of goods and services based on its unique combination of social values and goals.

answer

All of the following are key economic questions that every society must answer? A. Who gets to consume which goods and services? B. How should goods and services be produced? C. What goods and services should be produced? D. Where should goods and services be produced?

question

D Most countries provide some kinds of economic assistance for the elderly, the very young, the poor, and the unemployed.

answer

Government programs that protect people experiencing unfavorable economic conditions are? A. essential to a market economy. B. factor payments. C. a command economy. D. a safety net.

question

C Factor payments are the income people recieve for supplying factors of production.

answer

The income people receive for supplying factors of production, such as land, labor, or capital, are? A. monetary inputs. B. capital investments. C. factor payments. D. receivables.

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A Most modern economies rely on government to supply only those services that are economically impractical for the market to handle, such as national defense and education. Market economies are the result of free enterprise.

answer

A mixed economy is? A. a market-based, economic system based on free enterprise with some government involvement. B. an economic system in which the government regulates all prices, production, and products. C. exactly the same as a centrally planned economy. D. the exact opposite of a free enterprise system.

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B Several different kinds of economic systems have evolved in response to the problem of scarcity, which is the problem that forces nations to answer difficult economic questions.

answer

The method used by a society to produce and distribute goods and services is? A. production curve. B. an economic system. C. an opportunity cost. D. the standard of living.

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C The advancements from the agricultural age to the industrial age along with the move from the industrial age to the information age are both attributed to innovations in technology.

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What has been mostly responsible for advancing from the agricultural age to the industrial age? A. economic freedom B. government C. innovation D. business

question

B Each society balances economic goals such as economic efficiency and freedom against others such as economic security and equity.

answer

How a society answers the key economic questions primarily depends on? A. how many resources it has available. B. a society's goals and values. C. the underutilization of resources. D. how it combines factors of production.

question

A In a centrally planned economy, nearly all businesses are owned by the central government, nearly all production is planned by the central government, and nearly all goods and services are distributed by the central government.

answer

In a centrally planned economy, the three key economic questions are answered by the? A. central government alone. B. central government with input from industry. C. marketplace alone. D. marketplace with some government involvement.

question

D Inefficient use of resources, which is characteristic of a traditional economy, generally results in a low standard of living.

answer

In which economy do communities generally have a low standard of living? A. market economy B. mixed economy C. industrial economy D. traditional economy

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