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, capital or entrepreneurship.
safety net
a set of government programs that protect people experiencing unfavorable economic conditions
standard of living
level of economic prosperity.
traditional economy
an economic system that relies on habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it.
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.
mixed economy
economic system which combines elements of traditional, market and centrally planned economies.
market
an 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.
household
a person or group of people living in the same residence.
firm
an organization that uses resources to produce a product, which it then sells
factor market
the arena of exchange in which firms purchase the factors of production from households.
profit
the financial gain made in a transaction.
product market
the market in which households purchase the goods and services that firms produce.
self-interest
an individual's own personal gain.
incentive
the hope of reward or fear of punishment that encourages a person to behave in a certain way.
competition
the struggle among producers for the dollars of consumers.
invisible hand
term economists use to describe the self-regulating nature of the marketplace
consumer sovereignty
The idea that consumers ultimately dictate what will be produced (or not produced) by choosing what to purchase (and what not to purchase).
socialism
an economic system based on state ownership of capital.
communism
an economic system in which the central government directs all major economic decisions
authoritarian
a government in which one leader or group of people holds absolute power
collective
large farm leased from the state to groups of peasant farmers.
heavy industry
industry that requires a large capital investment and that produces items used in other industries
laissez faire
policy allowing business to operate with little or no government interference
free enterprise
economic system in which individuals and businesses are allowed to compete for profit with a minimum of government interference
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 to individuals state-run firms, which are then allowed to compete with one another in the marketplace