Economics: Economic Institutions – Flashcards
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1. What goods are being produced? 2. How should they be produced? 3. How should they be distributed?
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What are the 3 big economic questions that all economic systems must answer?
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An economic state in which every resource is optimally allocated to serve each person in the best way.
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Economic efficiency
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The freedom to choose how to produce, sell, and use your own resources
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Economic Freedom
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Provides safety nets such as welfare
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Economic Security
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The concept of fairness e.g. taxation
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Economic Equity
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An increase in the amount of goods and services produced per head of the population over time.
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Economic Growth
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Decisions regarding investment, production, and distribution are based on supply and demand. There is limited government involvement. Usually adopted by capitalist countries
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Free market economy
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the government has the power over the financial management of the country. Has state-owned entities as well as privately-owned entities that are controlled by the state. Usually adopted by communist countries.
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Command Economy (Planned)
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An economic system in which the government is responsible for reducing economic inequality via programs that benefit the poor. Advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.
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Socialism
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An economic system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.believe that the government does not use economic resources as efficiently as private enterprises do, and therefore society is better off with the free market
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Capitalism
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humanly devised constraints that structure human interaction. They are made up of formal constraints (rules, laws, constitutions), informal constraints (norms of behavior, conventions, e.g., competitive markets, the banking system, customary tipping, and a system of property rights.
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What are institutions?
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The Rule of Law, Property Rights, Competitive Markets, Entrepreneurship.
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What are the four key institutions for economic freedom?
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Secures individual freedom and well-being. Having a strong rule of law means not only that the country has laws; it means that there is an expectation that laws will be administered and enforced in a consistent manner.
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The Rule of Law
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The rights that people have to own property. (duh)
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Property Rights
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The ability of buyers to buy what they want and sellers to sell what they want at the prices they agree upon without interference. Correlates with economic freedoms.
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Competitive Markets
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The freedom or ability of being able to start your own business.
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Entrepreneurship
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Producers adopt efficient methods of production to maximize profits and create competition. In a free market scenario where a producer is selling their goods for a lower price, the consumer will more likely buy from them. The lowered price would act as an incentive that would go against all other competitors. Competitors who are unable to keep up will naturally disappear with the help of the invisible hand
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how do incentives and competitive markets play in with the invisible hand?
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efficiency, growth, and freedom
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Which goals are more attainable in a free market?
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equity and security (full employment?)
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Which goals are harder to attain in a free market?
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With more money to spend, demand for goods and services will increase
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economic efficiency in a taxpayer relief scenario
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^More people will seek to to invest in a variety of stocks
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economic growth in a taxpayer relief scenario
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-- There will be unemployment benefits, but only for those whoa re actively seeking for a job.
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full employment in a taxpayer relief scenario
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^People have the freedom to invest there money elsewhere.
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economic freedom in a privatizing s.s. scenario
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^People will have a greater motivation to seek success in their lives knowing that social security will no longer support them.
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economic efficiency in a privatizing s.s. scenario
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^Individuals will no longer be the responsibility of the government if they fail.
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Economic growth in a privatizing s.s scenario
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/People who make lower wages will have a harder time retiring.
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Economic Equity in a privatizing s.s. scenario
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^ With investments made by retirees, companies will be able to hire more people.
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Full Employment
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Socialism discourages entrepreneurship
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Why is too much socialism bad?
