Economic Systems Flashcards
Three basic economic systems
Traditional economy
Command economy
Market economy
Traditional economy
all economic activities are based on traditions and customs
Command economy
when a central authority makes most of the “what,” “how,” and “for whom” decisions in an economy
Market economy
When people and firms act in their own best interests to answer the “what,” “how,” and “for whom” decisions
Seven golden goals
Economic freedom Economic efficiency Economic equality Economic security Full employment Price stability Economic growth
Capitalism
a system in which private citizens own the factors of production
Characteristics of free enterprise and capitalism
Economic freedom
Voluntary exchange
Private property
Profit motive
Sole proprietorship
a business owned and run by one person
Partnership
a business jointly owned by two or more persons
General partnership
all partners are responsible for the management and financial obligations of the business
Limited partnership
at least one partner isn’t active in the daily running of the business
Corporation
a business organization recognized by law as a separate legal entity having all the rights of an individual
Charter
specifies the number of shares of stock that exist
Shares
certificates of ownership
Common stock
the basic ownership of a corporation. They vote for the board of directors
