Economics: Chapter 2 Study Guide

traditional economy
An economic system in which the use of scarce resources, and nearly all other economic activity, stem from ritual, habit, or custom
command economy
An economic system where a central authority makes the major decisions about WHAT, HOW, and FOR WHOM to produce
market economy
An economic system in which supply, demand, and the price system help people make decisions and allocate resources. It’s the same as a free enterprise economy. It’s when people make decisions in their own best interest.
mixed economy
A system that combines elements of all three types of economies
voluntary exchange
Act of buyers and sellers freely and willingly engaging in market transactions. This is characteristic of capitalism and free enterprise.
consumer sovereignty
This is the idea that the consumer is the ruler of the market when determining the types of goods and services produced
competition
The struggle among sellers to attract consumers
false advertisement
When advertisers make false claims about their products
economic interdependence
Mutual dependence of one person’s, firm’s, or region’s economic activities on another
modified private enterprise economy
This is a free enterprise market economy where people carry on their economic affairs freely, but are subject to some government intervention and regulation. This is like a mixed economy.
inflation
Rise in the general level of prices
fixed income
Income that does not increase, even though prices go up
depression
The state of the economy when large numbers of people are unemployed, there are declining real incomes, overcapacity in manufacturing plants, and general economic hardship
The government
Who provides public education in America?
capitalism
An economic system in which private citizens own and use the factors of production in order to generate profits
socialism
An economic system in which government owns some factors of production and has a role in determining what and how goods are produced
economic freedom
One of the 7 economic and social goals: The freedom of people to make their own economic decisions such as their occupation, employers, and what they spend their money on
economic efficiency
One of the 7 economic and social goals: The idea that because resources are scarce, the factors of production must be used wisely. Economic decisions must be efficient so more goods and services can be produced.
economic equity
One of the 7 economic and social goals: The idea that there must be equality in the job world. This includes not being able to discriminate based on age, race, sex, religion, or disability when employing someone. It also includes the minimum wage law.
economic security
One of the 7 economic and social goals: This is the idea that Americans should have some protection from adverse economic events such as layoffs and illnesses. This includes our Social Security program and programs that help people who lose their jobs or face illness while employed.
full employment
One of the 7 economic and social goals: This is the idea that our economic system should provide as many jobs as possible. Without this, people cannot support themselves or their families.
price stability
One of the 7 economic and social goals: This is the idea that prices should remain stable. This is especially true for people whose income does not go up when prices rise, making it harder for them to pay their bills and ensure other necessities.
economic growth
One of the 7 economic and social goals: The idea that most Americans hope to have a better job, home, and other things for the future. This allows people to have more goods and services available to them.
free enterprise
When resources are privately owned, and competition is allowed to flourish with little government interference
private property rights
The fundamental feature of capitalism, which allows individuals to own and control their possessions as they wish. This includes both tangible and intangible property.
social security
A federal program of disability and retirement benefits that covers most working people
profit
The extent to which people or organizations are better off at the end of a period than they were at the beginning, usually measured in dollars
profit motive
This is the driving force that encourages people and organizations to improve their material well-being. This is a characteristic of capitalism and free enterprise.