Economics Chapter 2 - Economic Systems Flashcards

Economic Systems Overview

• An economic system is the method a society employs to produce and distribute goods and services.
• Key types of economic systems include traditional economies, market economies, centrally planned economies, command economies, and mixed economies.

Types of Economic Systems

• Traditional Economy: Relies on customs and rituals for production and consumption decisions.
• Market Economy: Based on voluntary exchange where decisions are driven by market interactions.
• Centrally Planned Economy: Central government makes all decisions regarding production and consumption.
• Command Economy: Similar to a centrally planned economy where a central authority controls the economy.
• Mixed Economy: Combines a market-based system with some government involvement.

Key Economic Concepts

• Factor Payments: Income received for supplying production factors like land, labor, and capital.
• Safety Net: Government programs designed to protect individuals during unfavorable economic conditions.
• Standard of Living: Reflects overall economic prosperity and quality of life.
• Specialization: Concentration of productive efforts on a limited set of activities to enhance efficiency.

Market Functions

• Market: An arrangement facilitating the exchange of goods and services between buyers and sellers.
• Factor Market: Firms purchase factors of production from households.
• Product Market: Households buy goods and services produced by firms.

Economic Incentives

• Self-Interest: Individuals’ motivations revolve around personal gains.
• Incentives: Expectations that influence behavior in specific ways.
• Competition: Producers struggle to attract consumer spending.

Economic Theories and Philosophies

• Invisible Hand: Concept describing how marketplace self-regulation leads to beneficial outcomes.
• Consumer Sovereignty: Consumers control production through their purchasing decisions.
• Laissez-Faire: Advocates minimal government intervention in economic activities.
• Socialism: Philosophy promoting wealth distribution through democratic means.
• Communism: Centrally planned system concentrating economic and political power in the government.

Ownership and Economic Roles

• Private Property: Property owned by individuals or enterprises, not the government.
• Free Enterprise: An economic system where capital goods are owned privately, emphasizing market freedom.
• Collective: Large farms leased to groups of peasant farmers, typically under state control.

Economic Enhancements and Transitions

• Privatize: Selling state-run enterprises to private individuals or entities.
• Understanding the continuum of economic systems helps in identifying market efficiencies and inefficiencies.

Key Historical Figures

• Adam Smith: Scottish philosopher who advocated for laissez-faire economics in "The Wealth of Nations," emphasizing limited government role in the economy.

Economic Characteristics in Specific Countries

• Canada: Exhibits a mixed economy leaning towards market dynamics.
• China: A mixed economy with significant central planning influences.

Important Economic Questions

• The three fundamental economic questions include what is produced, how it is produced, and whom it is consumed by.

Economic Efficiency

• Efficiency Improvement: Specialization is a crucial factor in enhancing economic efficiency, allowing for more effective use of resources.

Limitations of Support Systems

• Government safety nets do not extend to individuals with low income, highlighting gaps in economic protection.