Chapter 2 & 3 Q’s – Flashcards
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What is an economic system?
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the method used by a society to produce and distribute goods and services
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How do a traditional economy, a market economy, a command economy, and a mixed economy differ?
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difference come from the way the society answer three questions
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Why aren't all people paid the same amount in factor payments for the resources they provide? Provide your own example of unequal factor payments.
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Society places difference values on difference goods and services. Ex: A teacher makes less than a brain surgeon.
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Why do governments provide safety nets for their citizens?
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to meet the goal of economic safety and predictability stability
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Give one example of a traditional, a command, and a market economic system.
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traditional - command - Soviet Union market - United States
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How does specialization make us more efficient?
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allows us to focus on one task at a time and doing that task to your best ability increasing efficiency
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What is the difference between the factor market and the product market?
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factor market provides goods and services necessary to make goods and services. product market focuses on finished good
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What is a profit?
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the financial gain made in a transaction
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What are the roles of households and firms in a market economy?
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households provide factors of productions and firms are buy factors of production
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How does competition among firms benefit consumers?
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by causing firms to sell high quality goods at good prices
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Explain what Adam Smith meant by "the invisible hand of the marketplace."
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the market is going to work on its own. He thought that if the government would leave it alone, it will be guided itself.
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How do socialism and communism differ?
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communism is almost always authoritarian government and socialism can rise in a democracy society.
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What characterizes an authoritarian government?
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strongly centralized and demand strict obedience from citizens
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Why did Soviet collectives offer little incentive to farmers?
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government pay farmers a set price, so no reason to work harder or better
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In the Soviet Union, what was the opportunity cost of the emphasis on heavy industry?
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everything is focused on heavy machinery
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What is laissez faire?
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the doctrine that states that government generally should not intervene in the marketplace
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Why have some nations begun a transition to free enterprise?
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to keep up with changing local economies
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Why are nations with centrally planned economies sometimes slow to succeed when they privatize industry?
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have to start from ground up and typically slower
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What constitutional guarantees underlie the American free enterprise system?
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private property rights, free contracts, and freedom from unfair taxes
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Explain at least three benefits of the free enterprise system.
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sell whatever, free exchange, can go into debt
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Compare macroeconomics with microeconomics.
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Macroeconomics - the study of the behavior and decision making of entire economies Microeconomics - the study of the economic behavior and decision making of small units, such as individuals, families, and businesses
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How does gross domestic product (GDP) provide a means to analyze economic growth?
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a strong GDP reflects on a healthy economy
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Give examples of new technology that has resulted in greater productivity for the United States.
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light bulb, computer, tractor, etc.
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What is the difference between a copyright and a patent?
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copyright - the exclusive legal right, given to a person to print, publish, perform, film, or record literary, artistic, or musical material, and to authorize others to do the same. patent - a government authority or license conferring a right or title for a set period, especially the sole right to exclude others from making, using, or selling an invention.
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Explain this sentence: Most public goods generate positive externalities.
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public good is something that benefits a great number of people. the side effects will be positive
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Why is a free rider a type of market failure?
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people cosuming goods and service that they didn't pay for
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What is the difference between the public sector and the private sector?
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public sector provided by government and private sector provided by individuals or businesses.
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How does welfare attempt to raise poor people's standard of living?
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welfare collects tax money and redistributes it to help poor people
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Why does poverty exist in a free market economy?
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in free market economy, wealth does not spread equally
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What is the difference between cash transfers and in-kind benefits?
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in-kind benefits are goods and services cash transfers are money
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How is Social Security an example of income redistribution?
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taxes people who are working then redistributes it to people who are elder or cant work
