Economics Chapter 2 Flashcards

Study Notes

An economic system organizes how a society meets its needs and wants efficiently.
Traditional economy relies on customs and habits to guide production and consumption decisions.
In a command economy, a central authority dictates major economic decisions, including what, how, and for whom to produce goods and services.
A market economy utilizes supply, demand, and pricing mechanisms to facilitate economic choices among individuals.

A market is where buyers and sellers interact to exchange goods and services.
Capitalism emphasizes private ownership of production factors, aiming for profit through individual enterprise.
A mixed economy blends elements of traditional, command, and market systems for a balanced approach.
Socialism entails government ownership and control over the means of production, impacting economic and political spheres.
Communism features state control over production resources, focusing on collective ownership and management.

Minimum wage establishes the lowest hourly pay workers can legally receive.
Social Security is a federal program providing benefits to retired and disabled individuals, funded by the workforce.
Inflation describes the overall rise in prices of goods and services, decreasing purchasing power.
A fixed income does not increase despite rising prices, which can affect financial stability.

Free enterprise allows for minimal government interference, fostering competition among businesses.
Voluntary exchange occurs when buyers and sellers willingly participate in market transactions, promoting economic activity.
Private property rights empower individuals to own, control, and utilize possessions as they choose.
Profit is realized when financial gains exceed initial investment or costs.
The profit motive incentivizes individuals and organizations to enhance their financial well-being.
Competition drives sellers to innovate and attract consumers, benefiting the market.
Consumer sovereignty emphasizes the influence consumers have in determining production priorities.

A mixed free enterprise economy combines individual economic freedom with certain government regulations to ensure societal needs are met while maintaining a competitive market environment.