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Econ Chapter 2/3
Chapters 2 and 3 Test
| Question | Answer |
|---|---|
| Means of production are privately owned | Capitalism |
| Some of the basic means of production are owned by the govt. | Socialism |
| All of the means of production are collectively (government) owned | Communism |
| The allocation of scarce resources, and nearly all other economic activity, stems from ritual, habit, or customs | Traditional economy |
| Economies in which a central authority makes most of what, how, and for whom decisions. Economic decisions are made by govt. | Command Economy |
| People and firms act in their own best interest to answer what, how, and for whom questions | Market Economy |
| Competition will lead to this | Efficiency |
| Consumers can choose what they want and need- producers can direct resources into or out of areas of the economy based on profitability | Freedom |
| Consumers and producers jointly answer what, how, and for whom questions | Highly decentralized |
| Role of govt. is small | Capitalism |
| High degree of consumer satisfaction | Capitalism |
| Flexible to accomodate change | Capitalism |
| Wealth accumulation is enormous | Capitalism |
| People who own things, even ideas (intellectual property) | Private property, market |
| Protection of private property by law | Market economy |
| Limited govt. involvement | Market economy |
| Hands off | Laizzes Fair, market |
| Voluntary exchange | Market economy |
| Specialization | Market economy |
| Tool that economists use to understand how market economies work | Circular flow model in market economy |
| The market for goods and services (activities not a place) | Product market |
| Market for factors of production- land, labor, capital, and entrepreneurs (Ford company buys the labor of the worker) | Factor markets |
| Key to a market economy | Competition |
| Advantages of a market economy | Economic and political freedom, different viewpoints, competition, profit, the ability to make money |
| Disadvantages of a market economy | No public goods or services, unequal distribution of wealth |
| Disadvantages of capitalism | Sometimes ignores public goods like schools, roads, defense, etc., ignores poor and disadvantaged |
| Allows most/all citizens to share the benefits of society and uses electoral prices to influence what, how, and for whom | Socialism |
| Disadvantages of socialism | Normally less efficient than capitalism, workers are guaranteed jobs- thus driving up the cost of production, taxes are higher b/c the govt. provides services |
| Other names for communism | Command, central planning |
| Central planning sets prices and the types of goods that will be produced | Communism |
| The movement of resources (particularly labor) is strictly enforce, workers can't choose their career paths | Communism |
| Central planning makes all economic decisions | Communism |
| Individual risk-taking is forbidden, state takes all of the risks | Communism |
| State authorities answer the basic questions of what, how and for whom, ignoring laws of supply and demand | Communism |
| Centrally planned system (one in which the govt. makes all decisions) | Command |
| Karl Marx had a huge impact of | Command economies |
| Communism is a more extreme version of | Socialism |
| Marx's idea where govt. owns some or all factors of production | Socialism |
| Born to middle class parents in Germany 1818, industrial revolution created wage slavery, wrote communist manifesto, said over time money would be concentrated into smaller groups | Karl Marx |
| No pure exists due to globalization of markets/economies, experimenting with free market ideas, ex. North Korea (built military at expense of people) | Command economies today |
| Has elements of traditional, command, and market economies | Mixed economy (USA) |
| Mixed economy of socialism and capitalism | France |
| Heavy govt. involvement, many services to people, paid time, retirement plans, but pay >60% of income to taxes | Sweden |
| Change from govt. ownership to private | Privatization |
| Change from private ownership to govt. | Nationalization |
| Another name for capitalism | Free enterprise system |
| Most common economic system | Mixed |
| Open opportunities for people to compete in market system, everyone has same right to succeed/fail, enter into contracts with own free will | Free enterprise system |
| Force that compels people to improve product and better business | Profit motive |
| Believed free markets should exist in law and medicine, *thought govt. most important role was to control $ circulation*, served presidents Nixon and Reagan as an advisor of economic policies | Milton Friedman |
| Allocating resources in FE System | Consumers try to get the best price for goods, producers try to max. profits, consumers vote with wallets |
| Both a consumer and producer like individual people | Government |
| Main decision makers in government | Households and businesses |
| Govt. uses tax revenues to to pay for | Resources and products |
| Use by one person doesn't impact usefulness by others, no incentive for businesses to produce them, ex. streetlight, library | Public Goods |
| Goods that we need for daily life (fire, police, bridges, roads, water lines) | Infrastructure |
| Another type of market failure, a positive or negative effect onto someone other than the producers- old factories, or planting flowers | Externalities |
| Income passing from one person to another w/o any goods or services being provided (birthdays, inheriting $) | Transfer payments |
| When the govt. transfers payments from taxpayers to people who don't provide goods/services | Public transfer payments |
| Medicare, Social Security, Medicaid are examples of | Safety nets |
| System in which govt. officials make all economic decisions | Centrally planned govt. |
| Requires absolute obedience to authority | Authoritarian |
| Wrote Das Kapital | Karl Marx |
| Made a detailed analysis of capitalism and foundation for socialist economic theory | Karl Marx |
| A trade in which both parties involve anticipate that the benefits will outweigh the costs | Voluntary exchange |
| The idea that consumers have the ultimate control over what is produced because they are free to buy what they want and to reject what they dont | Consumer sovereignty |
| Fundamentals of a market economy | Private property, specialization, consumer sovereignty, competition, profit, voluntary exchange, and govt. involvement |
| All of the economic interactions that cross international boundaries | Global economy |
| The ability for everyone to take mart in the market by free choice | Open opportunity |
| Situation in which everyone has the same economic rights under the law | Legal equality |
| Legal rights built into the FE System | Open opportunity, free contract, legal equality |
| Wrote Free to Choose | Milton Friedman |
| FE system with some govt. involvement | Modified free enterprise economy |
| Occurs when people who aren't part of a marketplace interaction benefit from it or pay part of its costs | Market failure |
| Government payment that helps cover the cost of an economic activity that has the potential to benefit the public as a whole | Subsidy |
| Govt. programs that are designed to protect people from economic hardships | Safety net |
Created by:
AliRutherford