Questions and Answers
What is another name for capitalism?
What is open opportunity?
The ability of everyone to enter and compete in the market of his or her own free choice.
Define legal equality.
A situation in which everyone has the same economic rights under the law.
What does free contract mean?
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What is the profit motive?
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What is profit?
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Describe a modified free enterprise economy.
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What is market failure?
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What are public goods?
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Define a free rider.
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What is infrastructure?
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What is an externality?
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What is a negative externality?
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What is a positive externality?
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Define subsidy.
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What is a safety net?
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What are transfer payments?
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Define public transfer payment.
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What is the incentive to improve material well-being by seeking to gain from economic activities called?
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What are producers looking to do in the marketplace?
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Where are businesses located in a typical circular flow model of a modified free enterprise economy?
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In the resource market of modified free enterprise, what does the government buy?
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When does a market failure occur?
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What do we call a person who does not pay for a service but benefits from it?
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What happens during a public transfer payment?
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The basic elements needed for a free enterprise system to work include choices, legal agreements, and _____.
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Free contract means that people can choose for themselves what legal agreements to enter into, or _____.
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Booksellers that have competed well against chain booksellers have often focused on _____.
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Producers determine the allocation of scarce resources by seeking _____ and responding to consumer votes on a product.
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The center of a typical circular flow model showing a modified free enterprise is occupied by _____.
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Study Notes
Key Concepts in Economics
- Free Enterprise System: Another term for capitalism, emphasizing private ownership of production resources.
- Open Opportunity: Guarantees that individuals can enter and compete in markets of their choice.
- Legal Equality: Ensures equal economic rights for everyone under the law.
- Free Contract: Allows individuals to decide which legal contracts to enter into independently.
- Profit Motive: The driving force encouraging individuals and organizations to enhance their material well-being through economic activities.
- Profit: The residual income after production costs have been deducted from sales revenue.
Economic Models and Systems
- Modified Free Enterprise Economy: A mixed economy incorporating government regulations and protections to balance the free enterprise system.
- Market Failure: Occurs when individuals who are not involved in a marketplace transaction either benefit from or bear the associated costs.
- Public Goods: Services and products provided by the government for collective consumption by the public.
- Free Rider: An individual who benefits from a good or service without paying for it.
- Infrastructure: Refers to the essential systems and structures needed for an economy and society to function effectively.
Externalities and Government Role
- Externality: Refers to side effects from transactions affecting parties not directly involved.
- Negative Externality: Imposes costs on individuals not part of the original economic activity.
- Positive Externality: Offers benefits to individuals not directly involved in the economic activity.
- Subsidy: Government funding aimed at reducing expenses related to activities that benefit the wider public.
- Safety Net: Government initiatives designed to protect individuals from economic hardships.
Financial Transactions and Government Transfers
- Transfer Payments: Monetary distributions to individuals that do not involve exchanges of goods or services.
- Public Transfer Payment: Government transfer of income from taxpayers to individuals, without any goods or services rendered in return.
Market Dynamics and Consumer Influence
- Incentive: The motivator to enhance material well-being through economic endeavors is the profit motive.
- Producers in the Marketplace: Typically motivated by the desire to earn a profit, which directs resource allocation.
- Circular Flow Model: In this model, households are represented on the right side, while businesses are on the left, with government playing a central role.
Examples and Applications
- Local Competition: Individual booksellers who succeed against chains often prioritize local market demands.
- Allocation of Scarce Resources: Producers allocate resources based on profit potential and consumer feedback, known as consumer votes.
Fundamental Elements of Free Enterprise
- Basic Elements: Essential components for a functioning free enterprise system include choices, legal agreements, and incentives.
- Legal Agreements: Free contract principle allows individuals the autonomy to select their legal agreements according to personal preference.
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Description
Test your knowledge of key concepts in Economics Chapter 3 with these flashcards. This quiz covers essential terms like free enterprise system and legal equality, helping you understand the foundations of capitalist economies. Perfect for students preparing for exams or wanting to solidify their understanding of economic principles.