economics – chapter 2 – study guide – Flashcards
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scarcity
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what forces societies and nations to answer hard economic questions?
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that society's goals and values
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the economic system which a society employs depend on what?
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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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what are the 3 key economic questions a society must answer?
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needs and wants
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what is often difficult to distinguish between in todays society?
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how much of our resources should we devote to national defense, education, public health and welfare, or consumer goods and which consumer goods we should produce
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what other important considerations must we take into consideration?
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an opportunity cost
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because of limited resources what comes with every choice we make?
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land, labor, and capital
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what does everything we want and need require?
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13
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how many products have the top 25 goods manufactures in the US launched each day?
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by how societies choose to distribute income
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how is the question of distribution determined?
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the question of who gets to consume which goods and services
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what lies at the heart of the differences between economic systems?
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based on its unique combination of social values and goals
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how does each society answer the question of distribution?
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economic efficiency, freedom, security and predictability, equity, & growth and innovation
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what are the 5 basic economic goals? (fig 2.2)
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maximize what they can get for the resources they have to work with
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what do most societies try and do because resources are scarce?
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it increases economic efficiency
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what happens if a society accurately assesses what to produce?
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inefficient
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what is an economy considered if it cant deliver goods?
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the opportunity to make our own choices
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what do most of us value?
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economic freedoms
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different economic systems allow different degrees of what?
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uncertainty
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what do most people not like?
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that goods and services will be available when they need them and that they can count on receiving expected payments on time
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of what do economic systems reassure people?
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a safety net
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what do most people feel the government should provide?
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some sort of base income
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what do most countries believe in providing for retired persons to ensure that older people can support themselves after retirement?
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all jobs
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even though people believe in equal pay for equal work, what does society not value equally?
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its standard living
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a nations economy must grow for what to improve?
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innovation
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what plays a huge role in economic growth?
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the family
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around what does the traditional economic system revolve?
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communities that tend to stay relatively small and close
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traditional economies are usually what?
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agricultural and hunting practices
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what usually lies at the heart of peoples lives, laws, and religious beliefs in a traditional economy?
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change at both individual and community level
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traditional economies also tend to resist what?
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lack modern conveniences and have a low standard of living
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what are traditional economic societies like in most cases?
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free markets or capitalism
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what else are market economies called?
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command economies
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what else are centrally planned economies called?
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mixed economies
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what are most modern economies?
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because no one is self sufficient
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why do markets exist?
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to exchange the things we have for the things we want
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what do markets allow us to do?
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individuals and privately owned businesses
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who owns the FoP in a free market system?
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households and firms
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who are the players in a free market economy?
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the FoPs
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what do households own?
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"inputs" or FoPs, into "outputs" or products
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what do firms transform?
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households
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from whom do firms purchase FoPs?
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factor market
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what is the exchange called?
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competition and our own self interest
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according to adam smith what 2 things keep the marketplace functioning?
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the wealth of nations
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what was the name of adam smiths book?
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motivating force in the free market
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how does self-interest relate to the free market?
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private property, free market pricing, competition, and consumer choice
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what do centrally planned economies oppose?
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the central governments
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who answers the key economic questions in a centrally planned government?
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the government
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who owns both land and capital in a centrally planned government?
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socialism and communism
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what are the 2 words most commonly associated with a centrally planned government?
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after a violent revolution
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how did communist believe that a socialist society could come about?
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produce more and better crops
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under a centrally planned economy individuals had few incentives to do what?
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quantity not quality
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on what did manufacturers have the incentive to focus?
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poor quality, serious shortages of non priority goods/services, and diminished production
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even though central planning can be used to jump start selected industries and guarantee jobs and incomes what is the downside?
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their performance almost always fall short of the ideals upon which the system is built
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what is the greatest disadvantage of a centrally planned economy?
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to pursue societal goals
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for what do command economies sacrifice individual freedom?
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do not adequately meet consumer needs, and limit freedom
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what is the drawback of centrally planned economy?
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because they have little potential for growth or change
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why will traditional economies not be successful?
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market economies
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even with its drawback what economy has the most advantage?
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raise the standard of living
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what did economists believe the free market economy would accomplish?
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limited degree of intervention in the economy
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what is needed from the government for a successful economy?
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because some needs and wants of modern society are difficult to answer in the market place
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why has government intervention increased?
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education, health care, and mass transits
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what are three needs that profit from government intervention?
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because there would be limited incentive to develop new products without them
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why do governments create laws protecting property rights and contracts?
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5th amendment
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what amendment protects citizens rights concerning private property?
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its values
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what must each nation assess to reach its economic goals?
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land, labor, and capital from households
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what does the government purchase in the product market?
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roads, defense
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what is an example of something the government provides int he product market?
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Taxes
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where does the government get the funds to transfer money into the economy?
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social security
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what is the greatest expenditure of the US government?
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the free market
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what market is the foundation of the US economy?
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one quarter of all enterprise are at least partly owned by individuals
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what happens in an economy where the government dominates?
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state firms must be privatized and then allowed to compete with one another in the market place
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what happens when transition is allowed to occur in a government dominated economy?
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the private sector
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what sector now rules the economy in hong kong?
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protects private property and rarely interferes in the free market
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what job does the government have in the free market of hong kong?
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free enterprise economy
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what type of economy dominates the US?
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keeping order, providing vital services, and promoting general welfare
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how does the government intervene in the US market?
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foreign investment and free trade
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what 2 things are encouraged in the US market?
