Economics Chapter 2 Flashcards

Questions and Answers

What is an economic system?

A way a society uses its scarce resources to satisfy its people's unlimited wants.

What is socialism?

An economic system in which the government owns almost all of the factors of production.

What does laissez faire mean?

The principle that the government shouldn't interfere in the economy.

What is meant by privatize?

To change from government or public ownership to private ownership. Signup and view all the answers

What is social security?

A federal program to aid older citizens, orphaned children, and the disabled. Signup and view all the answers

What is free enterprise?

An economic system based on private ownership of productive resources. Signup and view all the answers

What defines a traditional economy?

An economic system where families, clans, or tribes make decisions based on customs and beliefs. Signup and view all the answers

What is communism?

An economic system in which there is no private ownership and little or no political freedom. Signup and view all the answers

What is a factor market?

The market for the factors of production: land, labor, capital, and entrepreneurship. Signup and view all the answers

What is the global economy?

All the economic interactions that cross international boundaries. Signup and view all the answers

What is inflation?

A sustained rise in the general price level or a sustained fall in the purchasing power of money. Signup and view all the answers

What is voluntary exchange?

A trade in which the parties involved anticipate that the benefits will outweigh the costs. Signup and view all the answers

What is competition in an economic context?

The effort of two or more people acting independently to get business by offering the best deal. Signup and view all the answers

What is a modified private enterprise economy?

A mixed economic system that includes some government protections, provisions, and regulations. Signup and view all the answers

What is a command economy?

An economic system in which the government makes all economic decisions. Signup and view all the answers

What does authoritarian mean?

Requiring absolute loyalty and obedience to authority. Signup and view all the answers

What is a product market?

The market in which goods and services are bought and sold. Signup and view all the answers

What is capitalism?

An economic system based on private ownership of the factors of production. Signup and view all the answers

What is fixed income?

An income that does not increase even though prices go up. Signup and view all the answers

What are private property rights?

The rights of individuals and groups to own resources and businesses. Signup and view all the answers

What is consumer sovereignty?

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

What is a market economy?

Economic decisions are made by individuals or the open market. Signup and view all the answers

Who is Karl Marx?

A 19th-century philosopher recognized as the father of communism. Signup and view all the answers

What does nationalize mean?

Change from private to public/government ownership. Signup and view all the answers

What is a mixed economy?

An economic system that incorporates elements of traditional, command, and market economies. Signup and view all the answers

What is profit?

A financial gain, especially the difference between the amount earned and the amount spent. Signup and view all the answers

What is the profit motive?

A person's incentive to work to gain something for themselves. Signup and view all the answers

What are the strengths and weaknesses of a traditional economic system?

Strengths: Everyone knows their role; little uncertainty. Weaknesses: Discourages new ideas. Signup and view all the answers

What are the strengths and weaknesses of a command economic system?

Strengths: rapid changes can be made, basic health services available. Weaknesses: consumer needs may not be met. Signup and view all the answers

What are the strengths and weaknesses of a market economic system?

Strengths: adaptable to change, high individual freedom. Weaknesses: inability to meet basic needs effectively. Signup and view all the answers

What are the seven major economic and social goals?

Economic Freedom, Economic Equality, Economic Security, Price Stability, Economic Efficiency, Economic Growth, Full Employment. Signup and view all the answers

How are people's roles determined in a traditional economy?

By the customs of their ancestors and elders. Signup and view all the answers

In a command economy, who makes the major decisions?

The government. Signup and view all the answers

In what type of economy do people/companies make most decisions?

Market/mixed/free enterprise economy. Signup and view all the answers

How does capitalism benefit consumers?

It gives people more choices that keep prices lower through competition. Signup and view all the answers

In what type of economy do people carry economic affairs freely but face government regulation?

Modified private enterprise economy. Signup and view all the answers

List and explain the characteristics of a free enterprise system.

<ol> <li>Economic freedom, 2. Voluntary exchange, 3. Private property rights, 4. Profit motive, 5. Competition.</li> </ol> Signup and view all the answers

What is the most common type of economic system today?

Mixed economy. Signup and view all the answers

Study Notes

Economic Systems

Economic system: method society uses scarce resources to meet unlimited wants.
Socialism: government ownership of almost all production factors.
Laissez faire: principle of non-interference by government in the economy.
Privatize: transition from government/public ownership to private ownership.
Communism: system with no private ownership and limited political freedom.

Key Economic Concepts

Free enterprise: capitalism based on private ownership of productive resources.
Traditional economy: decisions made by families and tribes based on customs and beliefs.
Factor market: marketplace for land, labor, capital, and entrepreneurship.
Product market: where goods and services are bought and sold.
Consumer sovereignty: consumers' power to determine production choices.

Economic Indicators and Effects

Inflation: sustained rise in general price level or fall in purchasing power.
Voluntary exchange: trade where parties expect benefits outweighing costs.
Profit motive: individual incentive to work for financial gain.

Economic Systems Analysis

Strengths of traditional economy: clear roles with little uncertainty.
Weaknesses of traditional economy: discouragement of innovation.
Strengths of command economy: rapid change capabilities and basic services availability.
Weaknesses of command economy: unmet consumer needs, bureaucratic delays.
Strengths of market economy: adaptability, consumer satisfaction, variety of goods.
Weaknesses of market economy: basic needs inadequately met, potential economic failure.

Economic freedom: high value on individual decision-making in economics.
Economic equality: strong tradition of justice and fairness.
Economic security: protection sought from adverse economic events.
Price stability: desire for stable prices to prevent inflation’s harmful effects.
Economic efficiency: wise use of resources to maximize output.
Economic growth: aspiration for improved living standards and success.
Full employment: importance of employment for income and family support.

Economic Decision-Making

Traditional economy: roles determined by customs of ancestors and elders.
Command economy: major decisions made by the government.
Market economy: individuals and companies make primary decisions regarding economics.

Benefits and Characteristics of Economic Systems

Capitalism benefits consumers by providing choices and competition that lower prices.
Modified private enterprise economy: allows free economic affairs with some government regulation.
Characteristics of a free enterprise system include:
- Economic freedom: choice in occupation, employer, and working conditions.
- Voluntary exchange: mutual benefits in transactions.
- Private property rights: ownership and control over possessions.
- Profit motive: drives material well-being and economic growth.
- Competition: encourages better deals for consumers among sellers.

Common Economic Systems Today

Mixed economy: most prevalent system combining elements of traditional, command, and market economies.

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Test your knowledge on key concepts from Chapter 2 of Economics with these flashcards. Terms include economic systems, socialism, and laissez-faire principles. Perfect for quick revision and enhancing your understanding of economic theories.