Econ. Chap. 2 Essay

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Descibe centrally-planned economies?
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The government makes all important economic decisions.
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The circular flow model shows
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the interactions between households and businesses in the free market.
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In an economy in transition from central planning to free enterprise, you might expect to see
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state firms sold to private individuals or entities.
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The former Soviet Union was an example of a communist country where
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most economic and political power was controlled by the government.
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The doctrine that government should not intervene in the marketplace is called
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laissez faire
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Markets allow us to
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exchange things we have for things we want or need
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Which economic goals are difficult to achieve in a pure market system?
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equity and security
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In a traditional economy, economic decisions are based largely on
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custom
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The self-regulating nature of the marketplace is called
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invisible hand
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Which of the following countries is the most extreme example of a centrally-planned economy?
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North Korea
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The circular flow model of a mixed economy shows
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how government interacts with households and firms in the product and factor markets.
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How does specialization affect an economy?
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It prevents duplication of effort.
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The government decides which goods and services will be produced in a
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command economy
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The free enterprise system of the United States is best described as a
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mixed economy with limited government intervention and a great deal of economic freedom.
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In return for supplying the factors of production—land, labor, or capital—people receive
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factor payments
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Competition and self-interest are two important forces in
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free market economies
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A social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout society is called
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socialism
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Socialists believe economic equality is only possible if
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the public controls the economy.
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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 is
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free enterprise
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range with no clear divisions.
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Continuum
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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?
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Hong Kong
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To sell state-run firms to individuals is to
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privatize
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Which of the following goods is provided by the U.S. government rather than by individuals?
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roads
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Which of the following countries is in transition from a centrally planned economy to a market-based system?
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China
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Property owned by individuals or companies, not by the government or the people, as a whole is
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private property
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Why do governments fulfill some of society’s needs, such as education, health care, and mass transit?
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so that all members of the society can participate
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Who answers the key economic questions in a centrally planned economy?
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government
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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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Industry that requires a large capital investment and that produces items used in other industries is known as
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heavy industry
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What is one benefit of a centrally planned economy?
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it provides a jumpstart to some industries
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requiring strict obedience to an authority, such as a dictator
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Authoritarian
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What is a major disadvantage of a centrally planned economy?
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It cannot meet consumers’ needs and wants.
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In the Soviet Union, a collective was a
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large farm leased from the state to groups of peasant farmers.
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Who owns the land and the capital in a centrally planned economy?
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government
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Why do markets exist?
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because people are not self-sufficient and need goods and services produced by others
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The struggle among producers for consumer dollars is
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competition
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According to Adam Smith, what are the two factors that regulate a marketplace?
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competition and self-interest
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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
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consumers of goods and services.
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In the study of economics, the definition of a market is
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an arrangement that allows buyers and sellers to exchange things.
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Something, such as a reward or bonus, that encourages people to behave in a certain way could be called
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an incentive.
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What is the purpose of a firm?
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to produce goods and services
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the power of consumers to decide what gets produced
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Consumer sovereignty
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What is an example of competition in the marketplace?
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A small town has only two grocery stores, which are located one block away from each other.
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In a centrally planned economy, the three key economic questions are answered by the
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central government alone.
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What has been mostly responsible for advancing from the agricultural age to the industrial age?
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innovation
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an economic system in which the government makes all the decisions about production and consumption of goods and services
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centrally planned economy
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In which economy do communities generally have a low standard of living?
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traditional economy
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Government programs that protect people experiencing unfavorable economic conditions are
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safety net
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a market-based, economic system based on free enterprise with some government involvement
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mixed economy
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The income people receive for supplying factors of production, such as land, labor, or capital, are
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factor payments
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The method used by a society to produce and distribute goods and services is
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economic system
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How a society answers the key economic questions primarily depends on
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a society’s goals and values.
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Love of ones country
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Patriotism
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Level of economic prosperity
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Standard of living
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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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Market economy
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Arrangement that follows buyers and sellers to exchange things
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Market
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The concentration of the productive efforts of individuals on a limited number of activities
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Specialization
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Person or group of people living in the same residence
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Household
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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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Financial gain made in transaction
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Profit
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Market in which households purchase the goods and services that firms produce
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Product market
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Ones own personal gain
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Self-interest
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Large farm leased from the state to groups of peasant farmers
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Collective
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I dustry requiring large capital investments and produces items used in other industries
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Heavy industry
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Period of change which an economy moves away from centrally planed to market-based
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Transition
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What are the 3 economic questions?
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1) what goods and services should be produced? 2) how should these goods and services be produced? 3) who consumes those goods and services?

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