ECON: Unit 1: Ch. 2 Flashcards Preview

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Flashcards in ECON: Unit 1: Ch. 2 Deck (37):
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economic system

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

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factor payments

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

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3 key economic questions

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)

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safety net

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

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standard of living

level of economic prosperity

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traditional economy

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

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market economies

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

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mixed economy

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

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market economies

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)

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specialization

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

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circular flow diagram

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

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why do markets exist?

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

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household

A person or group living in the same residence

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players in the free market economy?

households and firms

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business/firm

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

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Firms purchase factors of production from?

households (this area of exchange= factor market

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profit

financial gain made in a transaction

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self-interest

their own personal gain

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incentive

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

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2 Self-Regulation Natures of the Marketplace

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

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competition

economist call this struggle among producers for dollars of consumers

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Advantages of the free market include...

-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

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socialism

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

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authoritarian

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

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collectives

large farms leased from the state to groups of peasant farmers

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communism

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

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7 economic goals and societal values

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

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Centrally planned economies (good and bad)

-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

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laissez faire

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

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private property

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

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free enterprise

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

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transition

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

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factor market

firms purchase factors of production from households

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product market

goods and services that firms produce and are purchased by households

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former soviet union

-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

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modern economies

-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

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circular flow model

-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