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?
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What is social security?
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What is free enterprise?
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What defines a traditional economy?
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What is communism?
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What is a factor market?
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What is the global economy?
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What is inflation?
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What is voluntary exchange?
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What is competition in an economic context?
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What is a modified private enterprise economy?
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What is a command economy?
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What does authoritarian mean?
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What is a product market?
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What is capitalism?
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What is fixed income?
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What are private property rights?
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What is consumer sovereignty?
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What is a market economy?
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Who is Karl Marx?
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What does nationalize mean?
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What is a mixed economy?
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What is profit?
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What is the profit motive?
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What are the strengths and weaknesses of a traditional economic system?
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What are the strengths and weaknesses of a command economic system?
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What are the strengths and weaknesses of a market economic system?
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What are the seven major economic and social goals?
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How are people's roles determined in a traditional economy?
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In a command economy, who makes the major decisions?
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In what type of economy do people/companies make most decisions?
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How does capitalism benefit consumers?
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In what type of economy do people carry economic affairs freely but face government regulation?
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List and explain the characteristics of a free enterprise system.
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What is the most common type of economic system today?
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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.
Major Economic and Social Goals
- 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.