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Chapter 2 Section 1 Answering the Three Economic Questions

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Economic System
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the method used by a society to produce and distribute goods and services
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Market Economy
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economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets
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Factor Payments
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the income people receive for supplying factors of production: land, labor, and capital
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Invisible Hand
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term economists use to describe the self-regulating nature of the marketplace
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Patriotism
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the love of one’s country; the passion that inspires a person to serve his or her country
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Safety Net
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government programs that protect people experiencing unfavorable economic conditions
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Standard of Living
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level of economic prosperity
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Traditional Economy
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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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Command Economy
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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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Mixed Economy
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economic system that combines the free market with limited government involvement
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Centrally Planned Economy
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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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Patriotism
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The love of one’s country; the passion that inspires a person to serve his or her country
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economic efficiency
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making the most of resources
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economic freedom
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freedom from government intervention in the production and distribution of goods and services
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economic security (and predictability)
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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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economic equity
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fair distribution of wealth
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economic growth (and innovation)
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innovation leads to economic growth, and economic growth leads to a higher standard of living