Economics Chapter 2 Vocab

What should be produced?
How should it be produced?
For whom should it be produced?

Three basic economic questions

Economic growth, economic freedom, equity, efficiency, economic security

Five basic economic goals

Traditional, Command, Market, Mixed

Four types of economic systems

Equity

the quality of being fair and just

Economic security

confidence in their ability to support themselves and their families

Social safety net

any form of government assistance for those with financial needs

Economic freedom

gives people the ability to make economic decisions for themselves

Sustainability

the ability to continue actions indefinitely; the ability of resources to last forever

Incentive

the prospect of a reward or punishment that influences a decision or motivates greater effort

Traditional economy

decisions about resources are made by habit, custom, superstition, or religious tradition

Advantages of traditional economy

economic security; stable and equity

Disadvantages of traditional economy

rarely achieve the goals of economic freedom, economic growth, and a high standard of living

Command economy

central planners make the important decisions about what, how, and for whom to produce

Communism

economic system under which all resources and businesses are publicly owned and economic decisions are made by central authorities

Socialism

an economic system under which most resources and businesses are publicly owned and economic decisions are made by groups of workers and consumers

Advantages of command economy

provide economic security, no safety nets, and flexibility-government can change what they want

Disadvantages of command economy

no equity-reality is that communism did not exist, low standard of living, and rationing/black markets

Incentive for traditional economy

social approval

Incentive for command economy

incentive comes from the government

Karl Marx

he Communist Manifesto; all about revolution; looked at economic systems through a historic lens; proletariat (have nots) vs bourgeoisie (haves); no countries are/were 100% communist

Market economy

most key economic decisions are made by business owners and consumers

free-enterprise system

an economic system based on private (individual or business) ownership of resources and voluntary exchange

Incentive for market economy

incentive is need to please consumers for profit

Advantages of market economy

efficiency, sustainability, economic growth, high standard of living, economic freedom

Disadvantages of market economy

equity, especially when viewed as equality of outcome rather than equality of opportunity; security (unemployment), resource conservation, morally questionable practices (selling goods or drugs not properly tested)

mixed economy

combines a market economy with significant government involvement and elements of tradition

Advantages of mixed economy

state provides essential services, low competition, high choices

Disadvantages of mixed economy

heavy taxes, high government control can add costs and discourage new business enterprises

The role of a government

establishes and enforces rules that improve market performance; provides important goods and services that private individuals tend not to purchase; helps improve economic security, equity, and sustainability