Econ 150 Chapter 2 Flashcards

Questions and Answers

What is an economic system?

A particular set of institutional arrangements and a coordinating mechanism for solving the economizing problem.

What determines what goods are produced, how they're produced, who gets them, how to accommodate change, and how to promote technological progress?

economic system

How do economic systems differ?

1 - who owns the factors of production; 2 - the method used to motivate, coordinate, and direct economic activity.

What is laissez-faire capitalism?

Pure capitalism where the government's role is limited to protecting private property and establishing a legal environment for markets. Signup and view all the answers

What is a command system?

A method of organizing an economy in which property resources are publicly owned and government uses central economic planning. Signup and view all the answers

What is consumer sovereignty?

Determination by consumers of the types and quantities of goods and services that will be produced. Signup and view all the answers

What are dollar votes?

'Votes' that consumers cast for the production of preferred products when they purchase them. Signup and view all the answers

What does the 'invisible hand' refer to?

The tendency of competition to promote the interests of society, even when individuals pursue their own interests. Signup and view all the answers

What does a circular flow diagram illustrate?

The flow of resources from households to firms and the flow of products from firms to households. Signup and view all the answers

Who are residual claimants?

Economic agents who receive whatever profit or loss remains at a firm after all input providers are paid. Signup and view all the answers

____ is a particular set of institutional arrangements and a coordinating mechanism that responds to the economizing problem.

economic system Signup and view all the answers

An economic system tends to address goods and services are to be produced, they are to be produced, ___ gets the goods.

what; how; who Signup and view all the answers

What does the term 'laissez-faire' refer to?

Limiting the government's interference in the economy Signup and view all the answers

Which of the following describe a command system? (Select all that apply)

A government-appointed central planning board Signup and view all the answers

What is the command system also known as? (Select all that apply)

Socialism Signup and view all the answers

Which of the following is true of a market system?

Is a combination of centralized government initiatives and decentralized actions taken by firms Signup and view all the answers

Which of the following is characterized by the private ownership of resources?

Market system Signup and view all the answers

The three main decisions that must be addressed by an economic system include which goods to demand, how to motivate employees, and how to distribute goods in a market.

False Signup and view all the answers

What has to determine what goods are produced, how they are produced, who gets them, how to accommodate change, and how to promote technological progress?

economic system Signup and view all the answers

____ ownership of capital gives capitalism its name.

private Signup and view all the answers

What is referred to when economic units try to achieve their own goals while delivering value to others?

self-interest Signup and view all the answers

Which of the following does competition require? (Select all that apply)

Freedom of sellers and buyers to enter or leave markets Signup and view all the answers

What is the coordinating mechanism in a market system?

prices Signup and view all the answers

A ________ is an institution or mechanism that brings buyers and sellers into contact.

market Signup and view all the answers

The goods and services produced by an economic unit through ____ can be exchanged for a full range of desired products by other economic units.

specialization Signup and view all the answers

_____ is the human specialization of some process.

division of labor Signup and view all the answers

Money complicates the exchange of trade.

False Signup and view all the answers

Which of the following best illustrates exchange through barter?

Farmer John trades his corn for some of his neighbor's oranges. Signup and view all the answers

An active, but limited government is characteristic of which market system in modern advanced economies?

free market system Signup and view all the answers

In the type of capitalism practiced in the US and most other countries, the government plays ____ role in the economy.

a substantial Signup and view all the answers

Why are advanced technology and capital goods important? (Select all that apply)

The most direct methods of producing a good or service are often the least efficient. Signup and view all the answers

In order to serve as money, an item must be generally acceptable to ____ in exchange for their goods and services.

sellers Signup and view all the answers

The title to an automobile or the deed to a cattle ranch assures a buyer that the seller is the legitimate owner of that property. This is an example of property rights _____.

Facilitating exchange Signup and view all the answers

Product and resource prices in a market system are determined by:

The interaction between buyers and sellers Signup and view all the answers

In the market system, competition, freedom of choice, self-interest, and personal ____ provide the opportunity and motivation for technological advance.

reward Signup and view all the answers

The interaction between buyers and sellers in a market system determines and .

Product; resource prices Signup and view all the answers

Study Notes

Economic Systems

Economic systems provide a framework for addressing the economizing problem, determining production, and resource allocation.
They differ primarily in ownership of production factors and methods for coordinating economic activities.

Laissez-Faire Capitalism

Known as pure capitalism, it limits government intervention, allowing markets to function on voluntary transactions.
The government’s role is restricted to protecting property rights and ensuring legal frameworks for market operations.

Command System

Characterized by public ownership of resources, with government central planning directing economic activity.
Commonly associated with socialism and communism.

Consumer Sovereignty

Consumers dictate what goods and services are produced through their purchasing choices, exerting influence through "dollar votes."

Invisible Hand

Describes how competition can lead to beneficial outcomes for society, even when individual firms are motivated by self-interest.

Circular Flow Diagram

Illustrates the movement of resources and products between households and firms, alongside the corresponding flow of money.

Residual Claimants

In a market system, these agents are entitled to profits or losses after all other inputs have been compensated, typically the firm owners.

Competition

Requires multiple independent buyers and sellers in a market, along with freedom for them to enter or exit the market.

Market System Characteristics

Defined by private ownership of resources and market coordination of economic activities.
Market prices are established through the interaction between buyers and sellers.

Specialization and Division of Labor

Specialization allows economic units to produce specific goods, facilitating exchange with others.
Division of labor enhances productivity by allocating specific tasks to individuals or groups.

Money as a Facilitator

Contrary to complicating trade, money simplifies exchanges by serving as a universally accepted medium.

Government's Role in Economic Systems

In the US and many advanced economies, the government plays a substantial role within a free market system, actively overseeing and intervening when necessary.

Technological Advancement

Advanced technology and capital goods can enhance worker productivity, though the most efficient production methods may not always seem direct.

Property Rights and Exchanges

Ownership titles, like those for an automobile or real estate, ensure legitimate ownership, facilitating smooth exchanges and economic growth.

Market Prices Determination

Prices in a market system arise from the dynamic interaction between buyers and sellers, not dictated solely by government or sellers.

Motivation for Technological Advances

Key motivations like freedom, self-interest, and the potential for rewards are essential for fostering innovation and advancements in technology.

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Description

Test your understanding of key terms and concepts from Chapter 2 of Econ 150. This quiz covers various definitions and characteristics of economic systems, addressing how they organize production and distribution in an economy. Perfect for review before exams!