private property rights
the rights of individuals and groups to own property
market
any place or situation in which people buy and sell resources and goods and services
laissez faire
the principle that the government should not interfere in the economy
capitalism
an economic system that is based on private ownership of the factors of production
voluntary exchange
a trade in which the parties involved anticipate that the benefits will outweigh the cost
profit
a financial gain from a business transaction; the money left over after the costs of producing a product are subtracted from the revenue gained by selling that product
competition
the effort of two or more people, acting independently, to get the business of others by offering the best deal
consumer sovereignty
the idea that because consumers are free to purchase what they want and to refuse products they do not want, they have the ultimate control over what is produced
specialization
a situation in which people concentrate their efforts in the areas in which they have an advantage
circular flow model
visualizes how all interactions occur in a market economy
product market
a market in which goods and services are bought and sold
factor market
the market for the factors of production- land, labor, capital, and entrepreneurship
free enterprise system
another name for capitalism, an economic system based on private ownership of productive resources
open opportunity
the ability of everyone to enter and compete in the marketplace of his or her own free choice
legal equality
a situation in which everyone has the same economic rights under the law
free contract
a situation in which people decide which legal agreements to enter into
profit motive
the force that encourages people and organizations to improve their material well being from economic activities
modified free enterprise economy
a free enterprise economic system with some government involvement
market failure
occurs when people who are not part of a marketplace interaction benefit from it or pay part of its cost
public goods
goods and services that are provided by the government and consumed by the public as a group
free rider
a person who chooses not to pay for a good or service but who benefits from it when it is provided
infrastructure
the goods and services that are necessary for the smooth functioning of society, such as highways; mass transit; power, water, and sewer systmes
externality
a side effect of a transaction that affeccts someone other than the producer or the buyer
negative externality
an externality that s a negative effect, or cost, for people who were not involved in the original economic activity (pollution caused by factories)
positive externality
an externality that is a positive effect, or benefit, for people who were not involved in the original economic activity (neighbor planting pretty flowers)
subsidy
a government payment that helps cover the cost of an economic activity that has the potential to benefit the public as a whole
safety net
government programs designed to protect people from economic hardships
transfer payments
transfers of income from one person or group to another even though the receiver does not provide anything in return
public transfer payment
a payment in which the government transfers income from taxpayers to recipients who do not provide anything in return