Economics Chapter 2 Test Flashcards

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Questions and Answers

What is a safety net?

A government subsidy for families.

A system to protect people experiencing unfavorable economic conditions. (correct)

A system to protect people experiencing favorable economic conditions.

A type of insurance for businesses.

What does standard of living refer to?

the level of economic prosperity

What are factor payments?

the income people receive for supplying factors of production

What is a traditional economy?

an economy that relies on habit, custom, or ritual to answer economic questions Signup and view all the answers

What are economic systems?

the method used by a society to produce and distribute goods and services Signup and view all the answers

What is innovation?

the process of bringing new methods, products, or ideas into use Signup and view all the answers

How does each society answer the three basic economic questions?

based on its unique combination of values and goals Signup and view all the answers

To improve its standard of living, a nation's economy must...

grow through innovation Signup and view all the answers

Traditional economies are usually large, technologically advanced communities.

False Signup and view all the answers

What determines how goods are produced?

the ways in which factors of production are combined Signup and view all the answers

What is self-interest?

an individual's own personal gain 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 is the factor market?

the arena of exchange where firms purchase factors of production Signup and view all the answers

What is an incentive?

the hope of reward that encourages a person to behave in a certain way Signup and view all the answers

What is consumer sovereignty?

the fact that consumers have the power to decide what gets produced Signup and view all the answers

What is specialization?

the concentration of the productive efforts of businesses and individuals on a finite number of activities Signup and view all the answers

Markets exist primarily because...

no one is self-sufficient Signup and view all the answers

In a free market economy, who owns the factors of production?

households Signup and view all the answers

According to Adam Smith, what 'invisible hand' regulates the free market economy?

competition and self-interest Signup and view all the answers

Why are free market economies able to attain economic growth?

competition encourages innovation Signup and view all the answers

What does authoritarian mean?

requiring strict obedience to a state or leader Signup and view all the answers

What is communism?

a political system in which the government owns all resources and production factors Signup and view all the answers

What is another name for a centrally planned economy?

command economy Signup and view all the answers

What is socialism?

a political system based on the belief that wealth should be evenly distributed Signup and view all the answers

What is a centrally planned economy?

an economy in which the government answers the key economic questions Signup and view all the answers

What is economic equity?

a major goal of socialist economies Signup and view all the answers

Why does a socialist society have a more flexible command economy than a communist society?

some free market practices can combine with central economic planning Signup and view all the answers

How did heavy industry in the Soviet Union avoid competition?

the government determined prices, wages, and products Signup and view all the answers

Why might the Soviet planners have favored heavy industry over the makers of consumer goods?

the products of heavy industry provide material for many other industries Signup and view all the answers

How is the economic system in China today different from the one in Soviet Russia?

the Chinese government allows more economic freedom Signup and view all the answers

What is economic transition?

a period of change in which an economy moves from one economic system to another Signup and view all the answers

What is a free enterprise system?

an economic system in which private individuals or corporations own capital goods Signup and view all the answers

What is privatization?

the selling of state-run firms, which are then allowed to compete in the marketplace Signup and view all the answers

What is laissez-faire?

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

What is a mixed economy?

a market-based economic system with some government involvement Signup and view all the answers

What is private property?

property owned by individuals or companies Signup and view all the answers

The United States economy is a mixed economy based on...

a free market, but allowing some government intervention Signup and view all the answers

Why is government intervention in a modern economy useful?

governments are more able to meet some needs and wants of society Signup and view all the answers

What is a difference between the economies of China and North Korea?

China is privatizing state-run businesses Signup and view all the answers

Why does the United States government intervene in the economy?

to promote the general welfare Signup and view all the answers

Study Notes

Economic Concepts and Systems

Safety Net: Protects individuals facing unfavorable economic conditions, ensuring basic support.
Standard of Living: Reflects the economic prosperity level of a population, influencing quality of life.
Factor Payments: Income individuals earn from providing factors of production like land, labor, and capital.
Traditional Economy: Defined by reliance on customs and rituals for economic decision-making; often prevalent in small, close-knit communities.
Economic Systems: Frameworks societies use to produce and distribute goods and services; varies widely across cultures.

Market Structures and Mechanisms

Innovation: Introduces new methods, products, or ideas, key for economic progress and competitiveness.
Self-Interest: Motivates individuals to act for their personal gain, driving market behavior.
Market: A platform enabling buyers and sellers to freely exchange goods and services.
Consumer Sovereignty: Indicates consumer power in determining production based on preferences and demands.

Production Factors and Growth

Factor Market: Arena where businesses acquire factors of production from households, crucial for economic activity.
Incentive: Motivational factors encouraging behaviors linked to economic activities, often tied to rewards.
Specialization: Focuses productive efforts on specific activities to enhance efficiency and expertise.
Economic Growth: Achieved through innovation and increased efficiency in utilizing resources.

Economic Models and Types

Free Market Economy: Characterized by household ownership of production factors and minimal government intervention.
Centrally Planned Economy: Government controls economic decisions, resulting in limited market freedom; exemplified by communism.
Socialism: Advocates for equitable wealth distribution, incorporating both market elements and state direction.
Mixed Economy: Combines free market principles with government regulation, balancing individual and public sector interests.

Historical and International Context

Soviet Union's Heavy Industry: Government management eliminated competition; focus on producing foundational goods for other industries.
China vs. North Korea: China promotes economic freedom and privatization, diverging from North Korea's rigid economic controls.
Economic Transition: Marks the shift from one economic system to another, such as moving from a command to a market-driven economy.

Government's Role in Economy

Government Intervention: Aimed at promoting general welfare, addressing market failures, and meeting societal needs and wants.
Privatization: Involves transferring state-run firms to private ownership, facilitating competition in the marketplace.
Laissez Faire: Economic philosophy advocating minimal government interference in market operations.

Key Takeaways on Economic Regulation

Competition: Acts as an "invisible hand" regulating free markets, fostering innovation while ensuring consumer choices.
Economic Equity: A fundamental goal of socialist economies, aiming for fair resource distribution among the population.

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Description

Test your knowledge on key economic terms from Chapter 2. This flashcard quiz includes essential concepts like safety nets, standard of living, and traditional economies. Perfect for students seeking to reinforce their understanding of economics.