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The survival of any society depends on

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its ability to provide food, clothing, and shelter for its people.

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Because these societies face scarcity,

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decisions concerning WHAT, HOW, and FOR WHOM to produce must be made.

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All societies have an

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economy, or economic system-an organized way of providing for the wants and needs of their people.

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Three major kinds of economic systems exist

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traditional, command, and market.

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Traditional Economies

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roles and economic decisions are defined by custom.

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Traditional Economies Examples

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the central African Mbuti, the Australian Aborigines, and northern Canada's Inuits.

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Traditional Economies Advantages

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everyone knows which role to play and there is little uncertainty about WHAT, HOW, and FOR WHOM to produce.

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Traditional Economies Disadvantages

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the discouragement of new ideas and new ways of thinking. This leads to a lower standard of living than in other societies.

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Command Economies

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a central authority determines WHAT, HOW, and FOR WHOM to produce.

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Command Economies Examples

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North Korea, Cuba, the former Soviet Union, and the People's Republic of China.

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Command Economies Advantages

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the ability to drastically change direction in a relatively short period of time and little uncertainty for its citizens.

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Command Economies Disadvantages

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consumer needs may not be met; hard work is not rewarded, the necessary decision-making bureaucracy delays decisions, and little flexibility to deal with day-to-day problem

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Market Economies

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producers and consumers determine WHAT, HOW, and FOR WHOM to produce.

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Market Economies Examples

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the US, Canada, Japan, S. Korea, Singapore, and parts of Western Europe.

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Market Economies Advantages

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the ability to adjust to change; the high degree of individual freedom, the small degree of government involvement, the ability to have a voice in the economy, the variety of goods and services created, and the high degree of consumer satisfaction.

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Market Economies Disadvantages

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the inability of the market to meet every person's basic needs. Markets also do an inadequate job of providing some highly valued services such as justice, education, and health care. Citizens of a market economy must also face a high level of personal uncertainty and the prospect of economic failure.

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Mixed Economy: Who decides WHO, WHAT and FOR WHOM?

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Government or Tradition and Market.

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Mixed Economy: Characteristics

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Most countries are a mixed economy. Political an economic systems vary from country to country.

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Mixed Economy Examples:

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China (traditional, command and market); Norway (market and socialism); Cuba and N. Korea (Socialism, but developed into command)

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Mixed Economies Advantages

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Provides assistance for some people who otherwise may be left out (too young, too old, too sick, etc). Democracies = people vote and affect government decisions.

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Mixed Economies Disadvantages

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More services = higher cost of living. Availability of services may be limited or quality may deteriorate. Industry may be less efficient.

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Explain how a market economy determines who will receive the benefits from what is produced and sold.

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Those who act in their own best interests will receive the benefits.

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Describe the characteristics of a traditional economy.

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sets economic roles, life is stable, predictable, continuous, and discourages ideas.

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How are roles defined in a traditional economy?

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long-standing customs.

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The social and economic goals of the United States include

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economic freedom, security, and equity.

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Every economic system has goals such as

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financial security and freedom to carry out economic choices.

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Goals are important because

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they serve as benchmarks that help us determine if the system meets most or all our needs.

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If the system falls short,

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we may demand laws to change the system until needs are met.

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Economic freedom

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the freedom for people to make their own economic decisions, is a goal highly valued in the US.

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Economic efficiency

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resources are used wisely and that the benefits gained are greater than the costs incurred.

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Economic equity

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the social goal that explains why so many people support laws against wage and job discrimination.

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Economic security

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a social goal that results in programs to help support the ill, the elderly, and workers who have lost their jobs.

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Most economic systems strive for

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full employment, or providing as many jobs as possible.

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is important to anyone trying to provide basic necessities on a limited income and for anyone planning their economic future.

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Price stability, or freedom from inflation,

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is an important goal because populations tend to increase and existing populations tend to want more goods and services.

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Economic growth

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When goals are at odds,

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people must compare costs to benefits before resolving the conflict.

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Most of the time, people, businesses, and government

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are able to work out conflicts among goals.

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why it is important to set economic goals.

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They help us determine if the system meets our needs.

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Describe the seven major goals of the United States economy.

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They are: economic freedom, efficiency, equity, security, full employment, price stability, and growth.

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Describe some of the economic choices people and producers in the United States are free to make.

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People choose their own occupations, employers, and uses for their money; producers choose where/how they produce.

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What characteristics does the United States economy have that allows it to resolve conflicts among goals?

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It allows choices, accommodates compromises, and satisfies most people most of the time.

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Under capitalism

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the basic economic decisions are made through the free interaction of individuals looking out for their own best interests.

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A market economy

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is normally based on a system of capitalism, where private citizens, many of whom are entrepreneurs, own the factors of production.

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Free enterprise

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another term used to describe the American economy.

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In a free enterprise economy,

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competition is allowed to flourish with a minimum of government interference.

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Capitalism

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is a market economy in which private citizens own the factors of production, In a free enterprise system, there is limited government interference and businesses are free to compete.

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With economic freedom,

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people and businesses make their own economic choices.

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The result of voluntary exchange,

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in which buyers and sellers are free to decide whether or not to complete a transaction, results in both buyers and sellers believing that the good or service obtained is of more value than the money or product given up.

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Private property rights

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motivate people to succeed. Any rewards they earn are kept.

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The profit motive encourages

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entrepreneurship and is largely responsible for the growth of a free enterprise economy.

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Competition among sellers helps

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lower prices.

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Entrepreneurs use ____ ____ ____ to make a profit.

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land, capital, and labor

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When an entrepreneur is successful _____ ________. Successful entrepreneurs _____ ____ ____ ____ ____ ____.

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everybody benefits, attract other firms to the industry.

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The consumer has ___ ___ ___ __ ___ ___ ___ . Consumer sovereignty describes ___ ___ ___ ___ ___ ___ ___ ___ ___ ___.

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much power in a free market economy, the role of the consumer as ruler of the market.

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Consumers in the American economy express their wants in the form of ______ ____ ___ _____. The dollars they spend are the ___ ___ ___ ___ ___ ___ ___.

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purchases in the marketplace, votes used to select the most popular products

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As a protector,

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a government may pass and enforce laws meant to prevent the abuse of consumers and workers.

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Governments are both

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providers and consumers.

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The U.S. government provides

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education and welfare and is the second largest consuming group in the economy after consumers.

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As a regulator, the government works to

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preserve competition.

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The ____ ___ ___ ___ is an important role of any government. In the United States, achieving economic equity and security has resulted in a ________________

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promoting of national goals, mixed economy, or modified private enterprise economy.

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Explain how the basic economic decisions are made under capitalism.

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made through free interaction of individuals looking out for their own best interests.

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List the five major characteristics of a free enterprise system.

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economic freedom, voluntary exchange, private property, profit motive, and competition.

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Describe the role of the entrepreneur.

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organizes and manages land, capital, labor and starts up businesses.

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Analyze the consequences of consumer economic decisions.

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They determine what is, and what is not, produced when they express their wants in the form of purchases in the marketplace.

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Americans have varying economic goals. How have these often-competing goals modified our free enterprise economy?

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modified our economy through increased government intervention in the economy in the form of programs like Social Security and laws dealing with minimum wage and child labor.

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Describe the seven major economic goals which most Americans agree on.

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economic freedom-freedom to make one's own economic decisions; economic efficiency-recognition that resources are scarce and need to be used wisely; economic equity-belief that the economy should be managed justly, impartially, and fairly; economic security-protection from effects of adverse economic events; full employment- desire for the economic system to provide as many jobs as possible; price stability-desire for stable prices; economic growth-production of more and better goods and services

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Explain how society resolves the conflict among goals which conflict.

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economic system is flexible, allows choices, and accommodates compromises

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State how people and businesses benefit from economic freedom.

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People can choose their employer, where and when they work, and how they spend their money. Businesses hire the best workers, and decide what and how to produce and what prices to charge.

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Explain the importance of the entrepreneur in a free enterprise economy.

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When entrepreneurs succeed, they benefit by gaining profits; workers benefit through jobs and higher wages; consumers benefit by having more and better products to buy; and government benefits through greater tax revenues.

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How has the development of transportation and communication systems affected the type of economy that exists in the United States?

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Freedom of movement of people and ideas has allowed the United States to develop a strong Market economy.

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What incentive does owning private property give people?

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the incentive to work harder, to save, to invest, and to succeed.

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Tradition Most people tip for service in restaurants, but not for service at clothing stores or gas stations. Explain how this illustrates economic behavior by tradition rather than by market or command.

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Tipping for service in a restaurant is a long-established tradition, just as tipping at clothing stores and gas stations is rarely done.

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Freedom and Equity Explain the role you as a consumer must play in obtaining economic equity for yourself.

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reporting unfair pricing or false advertising

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Voluntary Exchange How does the principle of voluntary exchange operate in a market economy?

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Both buyers and sellers must believe that something they want has more value than the money or products they want to give up.

Flashcards and Answers – Econ Chapter 2

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