Economics Chapter 2 - Economic Systems Flashcards

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Questions and Answers

What is the definition of an economic system?

An arrangement for collective farming

A political system characterized by centralized control

The method used by a society to produce and distribute goods and services (correct)

The legal framework for property rights

What are factor payments?

The income people receive for supplying factors of production, such as land, labor, or capital.

What is a safety net?

Government programs that protect people experiencing unfavorable economic conditions.

What does standard of living refer to?

Level of economic prosperity. Signup and view all the answers

What is a traditional economy?

An economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services. Signup and view all the answers

What is a market economy?

An economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets. Signup and view all the answers

What is a centrally planned economy?

An economic system in which the central government makes all decisions on the production and consumption of goods and services. Signup and view all the answers

What defines a command economy?

An economic system in which a central authority is in command of the economy; a centrally planned economy. Signup and view all the answers

What is a mixed economy?

A market-based economic system with limited government involvement. Signup and view all the answers

What is a market?

An arrangement that allows buyers and sellers to exchange things. Signup and view all the answers

What does specialization mean?

The concentration of the productive efforts of individuals and firms on a limited number of activities. Signup and view all the answers

What is a household?

A person or group of people living in the same residence. Signup and view all the answers

What defines a firm?

An organization that uses resources to produce a product, which it then sells. Signup and view all the answers

What is a factor market?

A market in which firms purchase the factors of production from households. Signup and view all the answers

What does profit refer to?

The financial gain made in a transaction. Signup and view all the answers

What is a product market?

The market in which households purchase the goods and services that firms produce. Signup and view all the answers

What does self-interest mean?

One's own personal gain. Signup and view all the answers

What is an incentive?

An expectation that encourages people to behave in a certain way. Signup and view all the answers

What does competition refer to in economics?

The struggle among producers for the dollars of consumers. Signup and view all the answers

What is the invisible hand?

A term economists use to describe the self-regulating nature of the marketplace. Signup and view all the answers

What does consumer sovereignty imply?

The powers of the consumers to decide what gets produced. Signup and view all the answers

What is socialism?

A social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society. Signup and view all the answers

What distinguishes communism?

A political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government. Signup and view all the answers

What does authoritarian mean?

Requiring strict obedience to an authority, such as a dictator. Signup and view all the answers

What is a collective?

A large farm leased from the state to groups of peasant farmers. Signup and view all the answers

What does laissez faire mean?

The doctrine that states that government generally should not intervene in the marketplace. Signup and view all the answers

What is private property?

Property owned by individuals or companies, not by the government or the people as a whole. Signup and view all the answers

What is free enterprise?

An economic system characterized by private or corporate ownership of capital goods. Signup and view all the answers

What does continuum refer to?

A range with no clear divisions. Signup and view all the answers

What does privatize mean?

To sell state-run firms to individuals. Signup and view all the answers

What is an advantage of free market?

It encourages growth. Signup and view all the answers

What do children in traditional economies grow up to do?

The same jobs their parents did. Signup and view all the answers

What are the 3 key economic questions?

What is produced? How is it produced? Whom is it consumed by? Signup and view all the answers

Who is Adam Smith?

(1723-1790) Scottish philosopher who advocated the idea of laissez faire. Signup and view all the answers

What type of economy does Canada have?

Mixed economy, leans towards the free market side. Signup and view all the answers

What type of economy does China have?

Mixed economy, leans towards the centrally planned side. Signup and view all the answers

What makes an economy more efficient?

Specialization. Signup and view all the answers

What does the government safety net not provide for?

Low income. Signup and view all the answers

Study Notes

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.

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Description

Test your knowledge of economic systems with these flashcards covering key terms and concepts from Chapter 2 of your economics course. Learn definitions and examples of essential economic vocabulary. Perfect for students looking to reinforce their understanding in a quick and effective way.