economic system
the structure of methods and principles that a society uses to produce and distribute goods and services
factor payment
the income people receive in return for supplying factors of production
profit
the amount of money a business receives in excess of its expenses
safety net
a set of government programs that protect people who face unfavorable economic conditions
standard of living
level of economic prosperity
innovation
the process of bringing new methods, products, or ideas into use
traditional economy
an economic system that relies on habit, custom, or ritual to decide the three economic questions
market
any arrangement that allows buyers and sellers to exchange things
specialization
the concentration of the productive efforts of individuals and businesses on a limited number of activities
free market economy
an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets
household
a person or group of people living in a single residence
firm
an organization that uses resources to produce a product or service, which it then sells
factor market
the arena of exchange in which firms purchase the factors of production from households
product market
the arena of exchange in which households purchase goods and services from firms
self-interest
an individual's own personal gain
incentive
the hope of reward or fear of penalty that encourages a person to behave in a certain way
competition
the struggle among producers for the dollars of consumers
invisible hand
a term coined by Adam Smith to describe the self-regulating nature of the marketplace
consumer sovereignty
the power of consumers to decide what gets produced
centrally planned economy
an economic system in which the government makes all decisions on the three key economic questions
command economy
another name for a centrally planned economy
socialism
a range of economic and political systems based on the belief that wealth should be distributed evenly throughout society
communism
a political system in which the government owns and controls all resources and means of production and makes all economic decisions
authoritarian
describes a form a government that limits individual freedoms and requires strict obedience from its citizens
laissez faire
the doctrine that government generally should not intervene in the marketplace
private property
property that is owned by individuals or companies, not by the government or the people as a whole
mixed economy
a market-based economic system in which the government is involved to some extent
economic transition
a period of change in which a nation moves from one economic system to another
privatization
the process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace
free enterprise system
an economic system characterized by private or corporate ownership of capital goods