Economics Chapter 2 – Flashcards
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economic system
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the structure of methods and principles that a society uses to produce and distribute goods and services
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factor payment
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the income people receive in return for supplying factors of production
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profit
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the amount of money a business receives in excess of its expenses
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safety net
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a set of government programs that protect people who face unfavorable economic conditions
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standard of living
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level of economic prosperity
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innovation
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the process of bringing new methods, products, or ideas into use
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traditional economy
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an economic system that relies on habit, custom, or ritual to decide the three economic questions
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market
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any arrangement that allows buyers and sellers to exchange things
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specialization
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the concentration of the productive efforts of individuals and businesses on a limited number of activities
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free market economy
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an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets
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household
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a person or group of people living in a single residence
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firm
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an organization that uses resources to produce a product or service, which it then sells
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factor market
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the arena of exchange in which firms purchase the factors of production from households
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product market
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the arena of exchange in which households purchase goods and services from firms
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self-interest
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an individual's own personal gain
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incentive
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the hope of reward or fear of penalty that encourages a person to behave in a certain way
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competition
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the struggle among producers for the dollars of consumers
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invisible hand
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a term coined by Adam Smith to describe the self-regulating nature of the marketplace
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consumer sovereignty
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the power of consumers to decide what gets produced
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centrally planned economy
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an economic system in which the government makes all decisions on the three key economic questions
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command economy
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another name for a centrally planned economy
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socialism
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a range of economic and political systems based on the belief that wealth should be distributed evenly throughout society
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communism
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a political system in which the government owns and controls all resources and means of production and makes all economic decisions
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authoritarian
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describes a form a government that limits individual freedoms and requires strict obedience from its citizens
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laissez faire
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the doctrine that government generally should not intervene in the marketplace
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private property
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property that is owned by individuals or companies, not by the government or the people as a whole
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mixed economy
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a market-based economic system in which the government is involved to some extent
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economic transition
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a period of change in which a nation moves from one economic system to another
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privatization
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the process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace
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free enterprise system
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an economic system characterized by private or corporate ownership of capital goods
