Economics Flashcards: Three Questions

Economic Questions

• Societies must answer three key economic questions: what goods and services to produce, how to produce them, and who will consume them.

Scarcity

• Scarcity refers to limited resources, which necessitates making choices and setting priorities in any economy.

Consumption

• The distribution of goods and services among consumers is often influenced by basic social values and goals.

Basic Economic Goals

• Five fundamental economic goals are efficiency, freedom, security and predictability, equity, and growth and innovation.

Types of Economies

• Four primary types of economic systems exist: traditional, market, centrally planned, and mixed economies.

Free Market Economy: Individuals and Businesses

• In a free market economy, individuals and businesses own the factors of production and have the freedom to produce and buy what they desire.

Free Market Economy: Households

• Households in a free market economy own land, labor, and capital, and participate as consumers of goods and services.

Free Market Economy: Firms

• Firms utilize resources to create products, which they subsequently sell in the marketplace.

Free Market Economy: Self-Interest

• Self-interest drives both consumers and producers within a free market, influencing economic decisions.

Free Market Economy: Competition

• Competition serves as a regulatory mechanism that governs production, purchasing, and selling activities.

Soviet Union's Objectives

• The main goal of the Soviet Union was to build national power and prestige.

Role of Central Government in USSR

• The USSR's central government controlled land, labor, and capital, determining what, how much, and how to produce and distribute goods and services.

Hard-to-Answer Needs and Wants

• National defense, road systems, conservation, and environmental protection are examples of needs and wants that are challenging to address.

Fairer Government Involvement

• Needs such as education, healthcare, employment, and mass transit are typically addressed more equitably with government intervention.

North Korea's Economic System

• North Korea's government owns all property and controls economic output, while allowing some private production.

China's Economy

• China features less extreme intervention than North Korea, with central planning and partial ownership of enterprises by individuals.

Hong Kong's Free Market

• Hong Kong is noted for having the world's freest market, continuing a free economic system from British rule.

Centrally Planned Economy

• A centrally planned economy is one where the central government makes all decisions regarding production and consumption.

Command Economy

• Similar to a centrally planned economy, a command economy relies on government decisions to guide economic activities.

Economic System Definition

• An economic system encompasses the methods used by society to produce and distribute goods and services.

Factor Payments

• Factor payments are the income received by individuals for providing land, labor, or capital.

Market Economy

• In a market economy, the production and consumption of goods and services occur through voluntary exchanges.

Mixed Economy

• A mixed economy integrates free market principles while allowing for limited government involvement.

Patriotism

• Patriotism involves a deep love for one's country and the drive to serve it in various capacities.

Safety Net

• Government safety nets are programs designed to assist individuals facing adverse economic conditions.

Standard of Living

• The standard of living measures the level of economic prosperity experienced by individuals or communities.

Traditional Economy

• A traditional economy bases its production and consumption choices on established habits, customs, or rituals.

Authoritarianism

• Authoritarian systems require strict obedience to a governing authority, often manifesting in dictatorial regimes.

Collective Farming

• Collectives are large farms leased from the state to groups of peasant farmers for shared agricultural production.

Communism

• Communism denotes a centrally planned economic system where all political and economic power is held by the government.

Heavy Industry

• Heavy industry requires significant capital investment to produce items foundational to other industries.

Socialism

• Socialism advocates for the democratic means of wealth distribution to achieve equity in society.

Competition

• Competition fosters a struggle among producers to attract consumers, driving down prices and enhancing quality.

Consumer Sovereignty

• Consumer sovereignty highlights the power of consumers to dictate production choices through their purchasing habits.

Factor Market

• The factor market involves firms buying the factors of production from households.

Firm Definition

• A firm is an organization that utilizes resources to produce and sell products.

Household Definition

• A household consists of individuals or groups residing together, participating in economic transactions.

Incentive Concept

• Incentives are expectations that motivate individuals to behave in a certain manner, influencing decisions.

Invisible Hand

• The concept of the invisible hand refers to the inherent self-regulating nature of market dynamics.

Market Definition

• A market is a system that facilitates the exchange of goods and services between buyers and sellers.

Profit Definition

• Profit is the financial gain obtained from transactions.

Self-Interest Overview

• Self-interest symbolizes the pursuit of personal benefit in economic behavior.

Specialization

• Specialization involves concentrating productive efforts on a limited number of activities to improve efficiency.

Continuum Explanation

• A continuum refers to a range with no distinct divisions, suggesting varying degrees of a characteristic.

Free Enterprise

• Free enterprise denotes an economic system where investment decisions are determined by private individuals rather than government control.

Laissez-Faire Principle

• Laissez-faire advocates minimal government intervention in market operations.

Private Property Rights

• Private property is owned by individuals or companies, contrasting with government or collective ownership.

Privatization Concept

• Privatization involves the transfer of state-run firms to private ownership, fostering competition in the marketplace.

Economic Transition

• Transition describes the period during which an economy shifts from a centrally planned system to a market-based structure.

This quiz explores the three fundamental economic questions that every society must answer: what to produce, how to produce it, and who consumes it. It also delves into concepts like scarcity and the impact of social values on economic decisions. Test your understanding of these key ideas in economics.