ECON: Unit 1: Ch. 2

Question 0

factor payments

Answer 0

the income ppl receive for supplying factors of production (land, labor, capital, or entrepreneurship)

Question 1

economic system

Answer 1

the method used by society to produce and distribute goods/services

Question 2

3 key economic questions

Answer 2

1. What goods/services should be produced? (opportunity cost)
2. How should these goods/services be produced? (which capitals)
3. Who consumes these goods and services? (distribution of income)

Question 3

safety net

Answer 3

set of government programs that protect ppl from experiencing unfavorable economic conditions

Question 4

standard of living

Answer 4

level of economic prosperity

Question 6

traditional economy

Answer 6

relies on habit, custom, or ritual to decide what to produce, how to produce it, to whom to distribute it
-revolves around family, small close communities, slow to adapt, have a low standard of living

Question 6

market economies

Answer 6

economy decisions are made by individuals and are based on exchange or trade
-AKA free market/capitalism

Question 7

mixed economy

Answer 7

market-based econ. systems in which gov. plays a limited role

Question 8

market economies

Answer 8

economy decisions are made by individuals and are based on exchange or trade

• AKA free market/capitalism
• leads to efficient use of resources including capital, land, and labor
• represented by a circular flow diagram (supply and demand)

Question 9

specialization

Answer 9

the concentration of the productive efforts of individuals and firms on a limited number of activities

Question 10

circular flow diagram

Answer 10

shows how individuals and businesses exchange money, resources, and products in the marketplace (inner ring of diagram= flow of resources and products, outer ring= flow of money

Question 11

why do markets exist?

Answer 11

because no one is self-efficient, none of us can produce all we require to satisfy our needs/wants

Question 12

household

Answer 12

A person or group living in the same residence

Question 13

players in the free market economy?

Answer 13

households and firms

Question 14

business/firm

Answer 14

an organization that uses resources to produce a product, which it then sells

Question 15

Firms purchase factors of production from?

Answer 15

households (this area of exchange= factor market

Question 16

profit

Answer 16

financial gain made in a transaction

Question 17

self-interest

Answer 17

their own personal gain

Question 18

incentive

Answer 18

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

Question 19

2 Self-Regulation Natures of the Marketplace

Answer 19

self-interest ( motivating force) and competition( regulating force)

Question 20

competition

Answer 20

economist call this struggle among producers for dollars of consumers

Question 22

Advantages of the free market include…

Answer 22

-Econ efficiency( responds well to rapidly changing conditions)
-Econ freedom( work where you want, firms produce what they want, individuals consume what they want)
-Econ growth( cause competition encourages innovation, free markets encourage growth)
-Additional Goals( cause producers have incentives to meet consumers desires, consumers decide what gets produced basically, aka consumer sovereignty)
CONS: No economic equity or security

Question 23

socialism

Answer 23

a social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout society
-purpose to achieve economic equality

Question 24

authoritarian

Answer 24

a type of gov. that requires strict obedience to an authority such as a dictator

Question 25

collectives

Answer 25

large farms leased from the state to groups of peasant farmers

Question 26

communism

Answer 26

characterized by a centrally planned economy w/ all economic and political power vesting in the hands of the central gov. -authoritarian: exact strict obedience with no freedom of judgement and action

Question 27

7 economic goals and societal values

Answer 27

1. economic efficiency: using resources wisely 2. economic freedom: laws that forbid purchases 3. economic security: welfare, unemployment 4. economic predictability: reassurance that goods and services will be available when needed and receive expected payments on time 5. equity: what constitues a fair share/higher vs lower paying job 6. growth and innovation: must grow to improve standard of living 7. full employment: everyone who wants a job will get a job etc: environmental protection, medical care

Question 28

Centrally planned economies (good and bad)

Answer 28

- operate in contrast to free market systems, oppose private property, free market pricing, competition, and consumer choice good: jump start industries/guarantee jobs and income bad: poor quality, serious shortages of non-priority goods/services, diminishing production, performance almost always falls shorts of ideals, workers lack incentive, sacrifice individual freedoms to pursue societal goals

Question 29

laissez faire

Answer 29

bitch you know this but... the doctrine that gov. shouldn't intervene in the marketplace

Question 30

private property

Answer 30

property that is owned by individuals or companies, not by the gov. Or the ppl as a whole

Question 31

free enterprise

Answer 31

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

Question 32

transition

Answer 32

period of change where economy moves away from centrally planned economy toward a market-based system -to do, state firms must be privatized or sold to people and allowed to compete in the marketplace

Question 33

factor market

Answer 33

firms purchase factors of production from households

Question 34

product market

Answer 34

goods and services that firms produce and are purchased by households

Question 35

former soviet union

Answer 35

- led by vladmir lenin, communist - agriculture: collectives: large farms leased from state to peasant farmers were instructed by government what to produce - industry: defense, space, machinery - focus on quantity, not quality - lack of incentives - consumers: waited hours to purchase, lack of housing - end: communism collapsed and russia sought western style democracy, faced corruption, money problems

Question 36

modern economies

Answer 36

- limits of laissez fair bc they need gov intervention for hwys, edu, private property etc - balance control and freedom: taxes, army, unemployment, minimum wage - circular flow model

Question 37

circular flow model

Answer 37

- gov in factor market: purchases land, labor, capital from households - gov in production market: purchases goods and services, provides certain goods - gov transferring money: collects taxes