Economics Chapter 2 McConnell/Brue 18th edition – Flashcards
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Economic System
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set of institutional arrangements and a coordinating mechanism
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Command System
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A method of organizing an economy in which property resources are publicly owned and government uses central economic planning to direct and coordinate economic activities; command economy; communism
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Market System
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An economic system in which individuals, not the government control the production and distribution of goods and services; also called capitalism
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Private Property
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property owned by individuals or companies, not by the government or the people as a whole
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Freedom of Enterprise
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Ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods and services and to sell them in their chosen markets
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Freedom of Choice
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enables owners to employ or dispose of their property and money as they see fit
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Self-interest
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economic unit tries to achieve its own goal, usually deliver something of value to others
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Competition
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Contest between individuals for shared resources
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Market
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mechanism that brings buyers and sellers into contact
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Specialization
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Goods and services are produced in better quality, quantity and speed when people focus on producing a few things instead of making everything they want by themselves.
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Division of labor
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human specialization
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Medium of exchange
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money; makes trade easier by not having to barter
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Barter
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swapping goods for goods
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money
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social invention to facilitate exchanges of goods and services
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consumer sovereignty
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consumers are in charge, crucial in determining what goods and services are produced
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dollar votes
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when consumers spend their income on goods they are most willing and able to buy showing their wants in the market
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creative destruction
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the creation of new products completely destroys the market positions of firms wedded to existing products and older ways of doing business
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invisible hand
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Adam Smith's primary idea in WoN, people all guided by selfish acts but better off for everyone
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circular flow diagram
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chart showing movement of goods and services from markets to businesses to consumer households
