Economics Chapter 3 Flashcards

Questions and Answers

What is another name for capitalism?

Socialism

Communism

Mixed economy

Free enterprise system (correct)

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?

People decide for themselves which legal agreements to enter into. Signup and view all the answers

What is the profit motive?

The incentive that encourages people and organizations to improve their material well-being by seeking to gain from economic activities. Signup and view all the answers

What is profit?

The money left over after the costs of producing a product are subtracted from the income gained by selling that product. Signup and view all the answers

Describe a modified free enterprise economy.

A mixed economic system that includes some government protections, provisions, and regulations to adjust the free enterprise system. Signup and view all the answers

What is market failure?

A situation in which people who are not part of a marketplace interaction benefit from it or pay of its costs. Signup and view all the answers

What are public goods?

Goods and services provided by the government and consumed by the public as a group. Signup and view all the answers

Define a free rider.

A person who does not pay for a good or service but who benefits from it when it is provided. Signup and view all the answers

What is infrastructure?

The basic set of support systems needed to keep an economy and society going. Signup and view all the answers

What is an externality?

A side effect of a transaction that affects someone other than the producer or buyer. Signup and view all the answers

What is a negative externality?

An externality that costs people who were not involved in the original economic activity. Signup and view all the answers

What is a positive externality?

An externality that benefits people who were not involved in the original economic activity. Signup and view all the answers

Define subsidy.

A government payment that helps cover the cost of an economic activity that can benefit the public as a whole. Signup and view all the answers

What is a safety net?

Government programs designed to protect people from economic hardships. Signup and view all the answers

What are transfer payments?

Money distributed to taxpayers who do not provide goods or services in return. Signup and view all the answers

Define public transfer payment.

A transfer payment in which the government transfers income from taxpayers to recipients who do not provide anything in return. Signup and view all the answers

What is the incentive to improve material well-being by seeking to gain from economic activities called?

Profit motive. Signup and view all the answers

What are producers looking to do in the marketplace?

Earn a profit. Signup and view all the answers

Where are businesses located in a typical circular flow model of a modified free enterprise economy?

On the left. Signup and view all the answers

In the resource market of modified free enterprise, what does the government buy?

Productive resources. Signup and view all the answers

When does a market failure occur?

When people who are not part of a marketplace interaction benefit from it. Signup and view all the answers

What do we call a person who does not pay for a service but benefits from it?

Free rider. Signup and view all the answers

What happens during a public transfer payment?

The government transfers income from taxpayers to recipients who do not provide anything in return. Signup and view all the answers

The basic elements needed for a free enterprise system to work include choices, legal agreements, and _____.

incentives Signup and view all the answers

Free contract means that people can choose for themselves what legal agreements to enter into, or _____.

free choice Signup and view all the answers

Booksellers that have competed well against chain booksellers have often focused on _____.

local needs Signup and view all the answers

Producers determine the allocation of scarce resources by seeking _____ and responding to consumer votes on a product.

profits Signup and view all the answers

The center of a typical circular flow model showing a modified free enterprise is occupied by _____.

government Signup and view all the answers

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.