Chapter 2 Flashcards
Economic system
coordinating mechanism (legal system, cultural/social norms(
Laissez-faire
Adam Smith’s ideal economy, government only protect private property and provide legal environment.
Command system
socialism/communism, government ownership of government, decisions made by a central planning board
Market system
encourages technological advancements, private ownership of resources, self interest
Specialization
division of labor; letting people do what they are good at
Uses of money
makes trade easier, medium of exchange, no need to barter
5 Questions of markets
What goods? how to produce? Who gets? how will the system change? progress?
What goods will be produced?
What makes profit; consumer sovereignty, and dollar votes
Consumer sovereignty
consumers choice
How a good will be produced
lowest cost per unit, technology and prices for necessary resources
Who will get output?
able and willing
How will the system change?
change in technology, consumer taste, resource prices
How system progress
technological advancements, capital accumulation
Creative destruction
once a product becomes outdated it is no longer produced
Virtues of the market system
efficiency, incentives, and freedom
