Econ Chapter 2 Answers – Flashcards
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what goods and services should be produced?, how should these goods and services be produced?, who consumes these goods and services?
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Three key economic questions
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scarcity
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Economic concept necessitating choices and priorities in any society
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who gets to consume which goods and services?
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Economic question answered by basic social values and goals
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efficiency, freedom, security and predictability, equity, growth and innovation
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Five basic economic goals
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traditional, market, command, mixed
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Four economic systems
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the method used by a society to produce and distribute goods and services
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Economic system
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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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the love of one's own country; the passion that inspires a person to serve his or her country
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Patriotism
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government programs that protect people experiencing unfavorable economic conditions; e.g. food stamps, social security, disability
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Safety net
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level of economic prosperity
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Standard of living
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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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economic system in which decisions on production and consumption of goods and services are based on voluntary exchanges in markets
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Market 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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Centrally planned economy
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economic system in which a central authority is in command of the economy; a centrally planned economy
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Command economy
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market-based economic system with limited government involvement
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Mixed economy
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an arrangement that allows buyers an sellers to exchange things
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Market
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the concentration of 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 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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the financial gain made in the transaction
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Profit
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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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one's own personal gain
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Self-interest
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an expectation that encourages people to behave in a certain way
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Incentive
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the struggle among producers for the dollars of consumers
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Competition
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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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a social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society
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Socialism
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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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requiring strict obedience to an authority, such as a dictator
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Authoritarian
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build national power and prestige in the international community
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Main goal of the Former Soviet Union
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-own and allocate land, labor, and capital -decide quantity, production process, and distribution of goods and services
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Role of central government (FSU)
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(+) guaranteed employment and income (-) few incentives to produce more/better crops - people went hungry
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Effects on agriculture (FSU)
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(+) guaranteed jobs and wages (-) little incentive to work harder/innovate; lower-quality resources
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Effects on industry (FSU)
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(+) affordable luxuries (-) scarce poor quality goods; housing shortages
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Effects on consumers (FSU)
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large farm leased from the state to groups of peasant farmers
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Collective
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industry that requires a large capital investment and that produces items used in other industries; e.g. automobile, steel, oil
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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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property owned by individuals or companies, not by the government or the people as a whole
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Private property
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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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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
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national defense, roads and highway systems
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What needs and wants are hard to answer?
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education, health care, employment, mass transit
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What needs and wants are answered more fairly with government involvement?
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government owns all the property and economic output. state-owned industries produce 95% of goods.
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North Korean government involvement
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1/4 of all enterprises are at least partially owned by individuals. China is in transition to a market-based system.
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China government involvement
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Hong Kong, because it continues to operate under the free economic system it enjoyed under British rule. their government rarely interferes in the free market, virtually no barriers exist on foreign trade, and banks operate independently.
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One of the world's freest markets, and why
