Chapter 3

Question 1

What type of economy is the US system?

Answer 1

Market Economy

Question 2

What is a market economy?

Answer 2

an economic system based on private property and the markets in which, in principle, individuals decide how, what, and for whom to produce

Question 3

individuals in a market economy can do whatever they want as long as it is ________

Answer 3

Legal

Question 4

What are private Property rights?

Answer 4

the control a private individual or firm has over an asset or right.

Question 5

what does a market system do?

Answer 5

Gives private property rights to individuals
Relies on market forces (prices) to coordinate economic activity.
Choices of what, how, and for whom to produce led by individuals

Question 6

What is capitalism?

Answer 6

is an economic system based on the market in which the ownership of the means of production resides with a small group of individuals (called capitalists)

Question 7

what is socialism?

Answer 7

is an economic system based on individuals’ goodwill towards others, not on their own self-interest, and in which, in principle, society decides what, how, and for whom to produce

Question 8

what is the Problem with socialism?

Answer 8

Income discrepancy between “high and low” income earners

Question 9

What are businesses?

Answer 9

Businesses are private producing units in our society

Question 10

What is consumer sovereignty

Answer 10

means that consumers’ wishes determine what is produced by businesses.

Question 11

What are sole proprietorships

Answer 11

businesses that have only one owner

72%

Question 12

what are Partnerships?

Answer 12

businesses with two or more owners

10%

Question 13

what are corporations?

Answer 13

businesses that are treated as a person, and are legally owned by their stockholders, who are not liable for the actions of the corporate “person”

18%

Question 14

What are households?

Answer 14

Households are groups of individuals living together making joint decisions

Question 15

What do household supply?

Answer 15

Households supply the labor with which businesses produce and government governs

Question 16

What is the largest source of household income?

Answer 16

wages and salaries

Question 17

what are the Two roles of government

Answer 17

An actor who collects money in taxes and spends that money on projects, such as defense and education
A referee who sets the rules that determine relations among businesses and households

Question 18

Government as a Referee

Answer 18

Businesses have to comply with equal opportunity and labor laws
Many working conditions are subject to government regulation, such as safety and overtime rules
Businesses cannot meet with other businesses to agree on prices they will charge
In some businesses, workers have to join a union to work at certain jobs

Question 19

Provide a stable institutional framework

Answer 19

Government creates a stable environment and enforces contracts through its legal system.

Question 20

Promote effective and workable competition.

Answer 20

Government can prevent excess monopoly power: the ability of individuals or firms currently in business to
Prevent others from entering the same kind of business.
Raise prices at will

Question 21

Correct for externalities

Answer 21

the effect of a decision on a third party not taken into account by the decision makers.
A positive externality, (education) benefits society more than the two parties.
A negative externality, (pollution) benefits society less than the two parties.
When these occur, government may adjust the market result, depends on the law, politics, and borders

Question 22

Ensure economic stability and growth.

Answer 22

The government can correct macroeconomic externalities: externalities that affect the levels of unemployment, inflation, or growth in the economy as a whole.
What we are trying to do now

Question 23

Provide public goods

Answer 23

– a good
1) that if supplied to one person must be supplied to all and
2) whose consumption by one individual does not prevent its consumption by another individual.
Government provides public goods and requires that everyone pays for them through taxes.
National Defense, Parks, Highways
Private Goods – the opposite

Question 24

Adjust for undesirable market results.

Answer 24

Market results may not be fair or good for individuals.

In deciding what is fair, the government must determine whether taxes should be

Question 25

What are market failures?

Answer 25

are situations in which the market does not lead to a desired result

Question 26

What are Government failures?

Answer 26

are situations in which the government intervenes and makes things worse

Question 27

What percent does the US economy make?

Answer 27

20%

Question 28

what are global corporations?

Answer 28

are corporations with substantial operations in both production and sales in more than one country

Question 29

What is the United Nations

Answer 29

The United Nations is an organization designed to achieve international cooperation but it has no ability to tax or enforce its policies on its members

Question 30

What is the World Bank?

Answer 30

The World Bank is a multinational, international financial institution that works to secure loans for developing countries

Question 31

What is the International Monetary Fund?

Answer 31

The International Monetary Fund (IMF) is a multinational, international financial institution concerned with monetary issues

Question 32

What is the group of 8?

Answer 32

The Group of Eight (G8) meets to promote negotiations and coordinate economic relations among nations. These eight countries include Japan, Germany, Britain, France, United States, Canada, Italy and Russia

Question 33

What is The North American Free Trade Act?

Answer 33

The North American Free Trade Act (NAFTA) is an organization devoted to reducing trade barriers between the U.S., Mexico, and Canada