Chapter 17 The Economic System at Work

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market economy
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the freedom to buy and sell what we choose when we choose as long as the products are legal
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command economy
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opposite of a free economy. the government owns almost all of the capital, tools, and production equipment
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traditional economy
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an economy that is based primarily on customs and traditions. Economic roles are passed down from father to son, and from mother to daughter
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free market
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an economic system buyers and sellers are free to exchange goods and services as they choose. government regulation is limited
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free competition
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a system in which business owners compete among themselves for customers
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profit
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financial gain of selling something for more than it took to make.
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invest
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put money into
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copyright
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the exclusive right, granted by law, to publish or sell of written, musical, or artistic work
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patent
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an exclusive right to make and sell an invention for a certain number of years
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scarcity
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not having enough resources to produce all of the things we would like to have
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law of supply
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business will provide more products when they can sell at higher prices and less when they must sell them at lower prices
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law of demand
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buyers will demand more products when they can buy them at lower prices and will demand less when they have to buy them at higher prices
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capital
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money invested in buildings, machines, and other forms of property used to produce goods and provide services
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capitalism
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an economic system based on private or corporate ownership of capital. It encourages people to work and invest so that they will improve financially in life.
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free-enterprise system
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the freedom to compete without unreasonable governmental interference.
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monopolies
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Corporations that gain complete control of the production of a single good or service.
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merger
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two or more companies combining to form one company
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trust
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business organization in which several companies create a board of trustees that ensures the companies no longer compete with one another
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economies of scale
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as a company produces larger numbers of a particular product, the cost of each of these products goes down, because goods can be produced more efficiently by larger companies
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conglomerate
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merger of businesses that produce, supply, or sell a number of unrelated goods like hotels, restaurants, car dealerships, etc.
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public utilities
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companies that provide essential services to the public like electric and gas companies
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mixed economy
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an economy which has a combination of free and command economies
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stock
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shares of ownership of a business
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dividends
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corporation profits(money) paid to stockholders
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rent
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money paid to use land or other property belonging to someone else
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sole proprietorship
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a business owned by one person or family. Advantages: own boss, keep all profits. Disadvantages: responsible for all debts and decisions
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When corporations sell stocks, they are
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raising money for their company, selling shares of ownership in their company, and agreeing to share their profits with stockholders
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What are economic freedoms that Americans enjoy?
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freedom to buy and sell, freedom to compete, freedom to earn a living, and the freedom to own property, freedom to earn a profit
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What are some ways the government oversees the economy?
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by preventing pollution, protecting workers’ health and safety, and protecting buyers from harmful products. They break up monopolies and create plans to stimulate the economy
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What are some duties of a corporation’s board of directors?
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represent stockholders in making decisions for the corporation and choosing executives to manage the company
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When opening a business, one of the most important decisions to make is what?
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The location of the business
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common stock
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riskier shares of corporate ownership
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preferred stock
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less risky shares in a company that receive profits first
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corporations
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licensed by state governments and owned by shareholders. Advantages: not responsible for all debts, unlimited life. Disadvantages: costly to organize
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nonprofit organizations
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charities and cultural programs often are examples
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partnerships
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business owned by two or more individuals. Advantages: share in decision making, increased capital. Disadvantages: responsible for all debts, limited life
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stockholders/shareholders
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people who buy shares in a company
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president
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the most powerful person in a corporation
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Four Factors of Production
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1. Natural resources 2. Capital 3. Labor 4 Entrepreneurship (owners of business)
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entrepreneur
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business owner
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natural resources
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trees, wheat, coal, wind, land, animals
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labor
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human effort used to produce goods and services (the workers)
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productivity
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how much work a worker does. His/her output
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profit motive
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desire to make a profit
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bond
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a certificate stating that the government has borrowed money from you and will pay it back with interest

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