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MicroEco Ch. 2
Microeconomics Chapter 2 The Market System & Circular Flow
| Term | Definition |
|---|---|
| Economic System | Particular set of institutional arrangements and a coordinating mechanism to respond to the economizing problem. |
| Command System | Government owns most property resources and economic decision making occurs through a central economic plan. EX. Communism & Socialism |
| Market System | Private ownership of resources and the use of markets and prices to coordinate and direct economic activity. EX. Capitalism |
| Freedom of Enterprise | Ensures that entrepreneurs and private businesses are free to obtain and use economic resources to produce their choice of goods/services & sell them in their chosen markets. |
| Freedom of Choice | Enables owners to employ or dispose of their property and money as they see fit. |
| Self-Interest | Each economic unity tries to achieve its own particular goal, which usually requires delivering something of value to others. |
| Market | An institution or mechanism that brings buyers (demanders) and sellers (suppliers) into contact. |
| Specialization | Using the resources of an individual, firm, region, or nation to produce one or a few goods/services rather than the entire range of goods/services. |
| Consumer Sovereignty | Consumer in command |
| Creative Destruction | The creation of new products and production methods completely destroys the market positions of firms that are wedded to existing products and older ways of doing business. |
| Efficiency | The market system promotes the efficient use of resources by guiding them into the production of goods/services most wanted by society. |
| Incentives | The market system encourages skill acquisition, hard work, and innovation |
| Freedom | The major noneonomic argument for the market system is the emphasis on personal freedom |
| Circular Flow Diagram | Illustrates flows fr a simplified economy in which there is no government |
| Households | One or more persons occupying a housing unity |
| Businesses | Commercial establishments that attempt to earn profits for their owners by offering goods and services for sale. |
| Partnership | Natural outgrowth of the sole proprietorship |
| Corporation | Independent legal entity that can, on its own behalf, acquire resources own assets, produce and sell products, incur debts,extend credit, sue and be sued, and engage in any legal business activity. |
| Product Market | Place where the goos and services produced by businesses are bought and sold. |
| Resource Market | Households sell resources to businesses |
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