Chapter 2

Question 1

Factor payment

Answer 1

the income you receive for giving factors of production

Question 2

Profit

Answer 2

Selling products to gain more money than what a business originally paid for.

Question 3

Safety net

Answer 3

A government program that helps people who are in unfortunate economics situations.

Question 4

Standard of living

Answer 4

level of economic prosperity

Question 5

Innovation

Answer 5

Bringing new ideas into efficient use.

Question 6

Traditional economy

Answer 6

Type of economy that relies on customs to shape our economy.

Question 7

What are the three economics question and their answers.

Answer 7

What goods and services should be produced?
How should these goods and services be produced?
Who consumes these goods and services?

Question 8

Market

Answer 8

An exchange between buyers and sellers

Question 9

Specialization

Answer 9

A method of production where a business or area focuses on production

Question 10

Free market economy

Answer 10

A system where the prices for goods and services are set by the consent of the vendors and consumers

Question 11

Household

Answer 11

People living in a single residence

Question 12

Firm

Answer 12

An organization that uses resources to produce goods/services

Question 13

Factor market

Answer 13

the arena of exchange in which firms purchase the factors of production from households

Question 14

Product market

Answer 14

the arena of exchange in which households purchase goods and services from firms

Question 15

Self-interest

Answer 15

an individual’s own personal gain

Question 16

Incentive

Answer 16

the hope of reward or fear of penalty that encourages a person to behave in a certain way

Question 17

Competition

Answer 17

the struggle among producers for the dollars of consumers

Question 18

Invisible hand

Answer 18

a term coined by Adam Smith to describe the self-regulating nature of the marketplace

Question 19

Consumer sovereignty

Answer 19

the power of consumers to decide what gets produced

Question 20

What do self-interest and competition affect?

Answer 20

The free market

Question 21

Centrally planned economy

Answer 21

an economic system in which the government makes all decisions on the three key economic questions

Question 22

Command economy

Answer 22

another name for a centrally planned economy

Question 23

Socialism

Answer 23

a range of economic and political systems based on the belief that wealth should be evenly distributed throughout society

Question 24

Communism

Answer 24

a political system in which the government owns and controls all resources and means of production and makes all economic decisions

Question 25

Examples of Communism

Answer 25

Soviet Union: World’s first communist state
- Best land, labor, and capital went to armed forces and heavy industries
-Factories were stuck with low quality resources
-Farmers forced to work on large farms
China:
-government planners controlled every part of the economy
-1950’s, peasants were forced to work on farms

Question 26

Authoritarian

Answer 26

describing a form of government which limits individual freedoms and requires strict obedience from their citizens

Question 27

Disadvantages of centrally planned economies

Answer 27

Poor quality goods, shortages, falling production, discourages change (no growth), limits freedom, does not meet consumer needs.

1. Economic efficiency
2. Economic freedom
3. Economic growth
4. Economic equity
5. Additional goals

Question 28

Free Market Advantages

Answer 28

Economic efficiency
Economic freedom
Economic growth
Additional goals

Question 29

Laissez faire

Answer 29

the doctrine that government generally should not intervene in the marketplace

Question 30

Private property

Answer 30

property that is owned by individuals or companies, not by the government or the people as a whole

Question 31

Mixed economy

Answer 31

a market-based economic system in which the government is involved to some extent

Question 32

Economic transition

Answer 32

a period of change in which a nation moves from one economic system to another

Question 33

Privatization

Answer 33

the process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace

Question 34

Free enterprise system

Answer 34

an economic system characterized by private or corporate ownership of capital goods

Question 35

Economics system

Answer 35

The way society uses produce and distributes goods and services