Chapter 4 Flashcards
Six features of capitalism
1) Private Property
-Ability for a person to own property, patents, and copyright.
2) Freedom of Enterprise and Choice
-Private enterprises are free to obtain economic resources, produce G/S that they choose and sell it in the market of their choice
-Freedom of choice means consumers can spend money as they fit
3) Role of Self-Interest
-People try to maximize their satisfaction. This can mean many things
4) Competition
-Large number of buyers and sellers
5) Reliance on the pricing system
-In a market economy, prices are basic organizing force
6) Limited Government
-Little need for government intervention inn the operation of a market economy other than just providing laws.
Consumer Sovereignty
Rules in a capitalist society ; consumer choice dictates what producers should produce
Three characteristics of a modern economy
1) Extensive use of capital goods
-under competition in a capitalistic society firms are forced to use the latest technology.
2) Specialization/Efficiency
-Division of Labor enhances economic output
3) Use of Money
-Money is used as a medium of exchange
Three ways specialization increase production
1) Abilities differ: Specialization allows individuals to take advantage of different skills
2) Learn by doing: by devoting all your time to a single task you even become a more specialized and productive
3) Save time: specialization avoids the loss of time from one task to another
Barter Exchange
The exchange of G/S for G/S without the use of money
Roundabout Production
Using capital goods to help produce G/S
Commodity Money
Money that takes the form of a commodity with intrinsic value. The item would have value even if it were not used as money
Fiat Money
Paper money that is not backed by or convertible into any commodity. it is just backed up by the full faith of the government for all payments for debt and credit
Three functions of prices
1) Information
2) Incentives
3) Rations G/S
Three questions every economic system must answer
What to produce
-The consumer decides what to produce
How to produce
-Search for profit determines how G/S are produced
How are G/S distributed
- They are distributed to consumers on their willingness and ability to pay
Trade flows/G/S flows
Is the exchange of G/S between Nation
Capital/Labor flows
Is when a US firm establishes a production facility in a foreign country
Information/Technology flows
Firms and other nations use technology created in the US and US businesses incorporate technology developed abroad
Financial flows
Money is transferred between nations for the purpose of G/S and Investments
Exports
G/S one country sells to another
