CH 2: Economic Systems – Flashcards
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Scottish political economist and philosopher. His Wealth of Nations (1776) laid the foundations of classical free-market economic theory, government should not interfere with economics. Advocates Laissez Faire and founder of "invisible hand"
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Adam Smith
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a form of trade in which people exchange goods and services without the use of money
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Barter
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The struggle among producers for the dollars of consumers. A business relation in which two parties compete to gain customers,
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Competition
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way in which the nation's income is divided among families, individuals, or other designated groups.
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Distribution of Income
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How people use limited resources to satisfy their wants and needs: What goods and services can we produce; How should we produce them; For whom should we produce them
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Economic Systems
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an economic system based on open competition in a free market, in which individuals and companies own the means of production and operate for profit
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Capitalism
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system in which the government controls the factors of production and makes all decisions about their use
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Command Economy
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a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government
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Communism
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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
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Free Enterprise
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an economic system based on free enterprise, in which businesses are privately owned, and production and prices are determined by supply and demand
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Market Economy
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free enterprise market economy where people carry on their economic affairs freely, but are subject to some government intervention and regulation
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Mixed Economy
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an economic system in which the government owns the basic means of production, distributes the products and wages, and provides social services such as health care and welfare
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Socialism
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economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services
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Traditional Economy
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anything that serves as a medium of exchange, a unit of account, and a store of value, the most common medium of exchange
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Money
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property owned by individuals or companies, not by the government or the people as a whole, the concept that people have the right and privilege to control their possessions as they wish
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Private Property
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the market in which households purchase the goods and services that firms produce
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Product Market
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the financial gain made in a transaction. the amount of money left over after expenses are taken out, the amount of money left over after all the costs of production have been paid
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Profit
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an arrangement that allows buyers and sellers to exchange things
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Market
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One's own personal gain. An idea, central to the philosophy of Adam Smith, that each individual's strongest drive is to better his or her own condition., acting or taking economic decisions meant to benefit one's-self rather than others.
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Self Interest
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a situation in which quantity demanded is greater than quantity supplied
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Shortage
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a measure of quality of life based on the amounts and kinds of goods and services a person can buy, or the quality of life of a nation based on goods and services available to the population
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Standard of Living
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a situation in which quantity supplied is greater than quantity demanded
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Surplus
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the act of buyers and sellers freely and willingly engaging in market transactions, Buyers and sellers make their own economic decisions to determine what the price will be for goods and services produced and sold.
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Voluntary Exchange
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love for one's country
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patriotism
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the income people receive for supplying factors of production, such as land, labor, or capital
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factor payments
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government programs that protect people experiencing unfavorable economic conditions
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safety net
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economic system in which the central government makes all decisions on the production and consumption of goods and services
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centrally planned economy
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the concentration of the productive efforts of individuals and firms on a limited number of activities
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specialization
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a person or group of people living in the same residence
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household
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an organization that uses resources to produce a product, which it then sells
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firm
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market in which firms purchase the factors of production from households
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factor market
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an expectation that encourages people to behave in a certain way
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incentive
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term economists use to describe the self-regulating nature of the marketplace
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invisible hand
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the power of consumers to decide what gets produced
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consumer sovereignty
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requiring strict obedience to an authority, such as a dictator
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authoritarian
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large farm leased from the state to groups of peasant farmers
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collective
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Wrote the Communist Manifesto. This man came up with the idea of communism/dialectic socialism that said that two classes have always battled against each other to form another class that will battle against its antithesis until the synthesis is one equal class working with each other for each other
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Karl Marx
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industry that requires a large capital investment and that produces items used in other industries
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heavy industry
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the doctrine that states that government generally should not intervene in the marketplace
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laissez-faire
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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 system
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transition
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to sell state-run firms to individuals
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privatize
