Economics Chapter 2 Flashcards

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.