Econ 2
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| 3 key economic questions | 1.What goods and services should be produced? 2.How should the goods and services be produced? 3.Who consumes these good and services?
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| Economic System | Structure of methods and principles society uses to produce and distribute goods and services
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| Factors of Production | Land, Labor, Capital
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| Factor payments | Income people receive in return for supplying factors of production (land,labor,capital)
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| Profit | Amount of money a business receives in excess of its expenses
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| Economic Goal:Efficiency | Deliver the right goods in the right quanity to the right people
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| Economic Goal:Freedom | The freedom to buy what we can pay for, to seek work where we want, to own property, and to become entrepreneurs.
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| Economic Goal:Security | Goods and services will be available when they are needed and paychecks will be received on time
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| Economic Goal:Equity | Fairness, how a society divides its goods and services among its citizens
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| Economic Goal: Growth | Must grow with nations population so it can provide hobs for new people joining the work force
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| Safety net | Set of programs to protect people who face unfavorable economic conditions such as layoffs, injuries, or natural disasters plus a base income for the elderly
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| Standard of living | Level of economic prosperity
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| How does innovation change economics? | Bringing new methods of production, products, or ideas into use
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| Traditional Economy | Oldest and simplest, relies on ha0bit, custom, or ritual to answer the three key economic questions-revolves around the family
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| Market | Any arrangement that allows buyers and sellers to exchange things
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| Markets eliminate the need for | A person to be self-sufficient
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| Benefits of Specialization | 1.Efficient use of capital, land and labor 2. Promotes worker efficiency 3.Saves resources by avoiding waste
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| Free market Economy | Choices made by individuals determine what gets made, how it is made, and how much people can consume of the goods and services produced. Individuals and businesses make their own decisions on what to buy and sell.
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| Another name for Free Market Economy | Capitalist economy
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| Participants in free market economy | households and firms
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| Household | Person or group of people living in a single residence
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| Firm | Business or organization that uses resources to produce a product or service, which is then sold
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| Factor market | Arena of exchange in which firms purchase the factors of production from households
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| Product market | Arena of exchange in which households purchase goods and services from firms
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| Goal:Economic Growth | Must grow with nations population so it can provide hobs for new people joining the work force
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| Safety net | Set of programs to protect people who face unfavorable economic conditions such as layoffs, injuries, or natural disasters plus a base income for the elderly
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| Standard of living | Level of economic prosperity
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| Innovation | Process of bringing new methods, products, or ideas into use
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| Traditional Economy | Oldest and simplest, relies on habit, custom, or ritual to answer the three key economic questions-revolves around the family
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| Market | Any arrangement that allows buyers and sellers to exchange things
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| Markets eliminate the need for | any one person to be self-sufficient
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| Specialization | Concentration of the productive efforts of individuals and businesses on a limited number of activities
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| Free market Economy | Choices made by individuals determine what gets made, how it is made, and how much people can consume of the goods and services produced. Individuals and businesses make their own decisions on what to buy and sell.
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| Another name for Free Market Economy | Capitalist economy
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| Participants in free market economy | households and firms
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| Household | Person or group of people living in a single residence
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| Firm | Business or organization that uses resources to produce a product or service, which is then sold
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| Factor market | Arena of exchnage in which firms purchase the factors of production from households
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| Product market | Arena of exchange in which households purchase goods and services from firms
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| Adam Smith | Wrote the book "The Wealth of Nations" that described how markets function
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| Self interest | An individual's own personal gain-the motivating force in the free market-the push that leads people to act
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| Incentive | Hope of reward or fear of penalty that encourages a person to behave in a certain way
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| Competition | Regulating force - Struggle among producers for the dollars of consumers
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| Invisible hand | Coined by Adam Smith to describe the self-regulating nature of the marketplace in a free market economy
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| Consumer sovereignty | In free market economy, consumers have the power to decide what gets produced
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| Advantages of free market | 1.Economic Efficiency, 2.Economic Freedom,3.Economic Growth
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| Centrally planned economy | Government rather than individuals producers and consumers answers the key economic questions of what to produce, how to produce it, and who gets it
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| Command economies | Another name for centrally planned economy-
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| Economy that opposes private property, free market pricing, competition, and consumer choice | Centrally planned economy/Command economy
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| Socialism | Economic and political systems based on belief that wealth should be evenly distributed throughout society
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| Communism | Central government owns and controls all resources and means of production and makes all economic decisions
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| Authoritarian | Government that limits individual freedoms and requires strict obedience from its citizens
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| Worlds first communist state | Soviet Union
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| Who answers the basic economic questions in a free market economy? | Individuals/consumers
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| What does Adam Smith mean by the invisible hand? | A marketplace that operates efficiently where self interest and competition work together to regulate the marketplace
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| Traditional Economy | Small, close communities that avoid change and new technology
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| What must be done to improve the standard of living of a nation? | Grow through innovation
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| Mixed Economy | A market based economy with some government involvement
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| Why do Markets exist? | They exist because no one is self sufficient
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| In a free market economy, who owns the factors of production? | Individuals
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| The ways in which factors of production are combined determines the answer to which economic question? | How will goods be produced?
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| Free enterprise system | An economic system characterize by private or corporate ownership of capital goods
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| Government intervention | Represents the actions taken by government to affect the economy
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| How is the economic system in China today different from the one in the Soviet Union? | China allows more economic freedom
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| How are free market economies able to attain economic growth? | Through competition which encourages innovation, which grows the economy
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| Why does a socialist society have a more flexible command economy than a communist society? | Socialists have some free market practices with their central economics plan; communist societies do not.
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| How did heavy industry in the Soviet Union avoid competition? | Only the government was involved in determining prices, wages and products to be produced
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| Laissez faire | Government should not interfere in the economy
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| Private property | Property owned by individuals or businesses
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| Economic transition | Period of change in which an economy moves from one economic system to another
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| Privatization | The selling of state run firms which are then allowed to compete in the marketplace
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