Economic system
the method used by a society to produce and distribute goods and services
Factor payments
the
INCOME people receive for supplying factors of production
, such as land, labor, and capital
patriotism
the love of one's country; the passion that inspires a person to serve his or her country
safety net
government programs that protect people experiencing unfavorable economic conditions
standard of living
level of economic prosperity
traditional economy
economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services
market economy
economic system in which decisions on production and consumption of goods and services are based on voluntary exchange in markets
centrally planned economy
economic system in which the central government makes all decisions on the production and consumption of goods and services
command economy
economic system in which a central authority is in command of the economy; a centrally planned economy.
mixed economy
market-based economic system in with limited government involvement
Three Key Economic Questions:
What goods and services should be produced?
What should these goods and services be produced?
Who consumes these goods and services?
market
arrangement that allows buyers and sellers to exchange things
specialization
the concentration of the productive efforts of individuals and firms on a limited number of activities
Free Market Economy
individuals and businesses use markets to exchange money and products
they
make what they want
and buy what they want
Household
a person or group of people living in the same residence and owns land, labor, and capital. They are also consumers of goods OR businesses.
Firm
an organization that uses resources to produce a product, which it then sells
Factor Market
market in which FIRMS purchase the factors of production from HOUSEHOLDS
Profit
Financial gain made in a transaction
Product Market
the market in which HOUSEHOLDS purchase the goods and services that FIRMS produce
Self-interest
one's own personal gain
Incentive
an expectation that encourages people to behave in a certain way
1.) Monetary Incentive - rewards in form of money.
2.) Nonmonetary Incentive - rewards with gifts, services, and goods.
Competition
the struggle among producers for the dollars of consumers
Invisible hands
term economists use to describe the self-regulating nature of the marketplace
Consumer Sovereignty
the power of consumers to decide what gets produced
Advantages of the Free Market:
(4 of them)
1. Economic Efficiency
2. Economic Freedom
3. Economic Growth
4. Additional Goals
Socialism
a social and POLITICAL philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout society.
-Requires HIGH degree of
central planning
for economic equality but sometimes allowed Capitalism
Communism
a POLITICAL system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government
Authoritarian
requiring strict obedience to an authority, such as a dictator
Collective
large farm leased from the state to group of peasant farmers
Heavy Industry
industry that requires a large capital investment and that produces items used in other industries
Laissez faire
The doctrine that states that government generally should not intervene in the marketplace.
Private property
Property owned by individuals or companies, not by the government or the people as a whole.
Free Enterprise
An economic system characterized by private or corporate ownership of capital goods. Investments that are determined by private decision rather than by the state control and determined in a FREE market.
Continuum
A range with no clear divisions.
Transition
Period of change in which an economy moves away from a centrally planned economy toward a market-based system.
Privatize
To sell state-run firms to individuals.
Expenditure
the total amount of money that a government, organization, or person spends during a particular period of time.