Economics - Chapter 2 Economic Systems
Economic issues and goals shared by all societies and the four principal economic systems: traditional, market, centrally planned, and mixed.
Terms in this set (33)
How people use limited resources to satisfy their wants and needs
What are the three economic questions?
What to produce? How to produce it? Who consumes that what is produced?
The struggle among producers for the dollars of consumers. A business relation in which two parties compete to gain customers,
a political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government
Standard of Living
a measure of quality of life based on the amounts and kinds of goods and services a person can buy, or the quality of life of a nation based on goods and services available to the population
an economic system based on open competition in a free market, in which individuals and companies own the means of production and operate for profit
One's own personal gain. An idea, central to the philosophy of Adam Smith, that each individual's strongest drive is to better his or her own condition., acting or taking economic decisions meant to benefit one's-self rather than others.
an economic system in which the government owns the basic means of production, distributes the products and wages, and provides social services such as health care and welfare
an expectation that encourages people to behave in a certain way
the market in which households purchase the goods and services that firms produce; top half of circular flow diagram
market in which firms purchase the factors of production from households; bottom half of the circular flow diagram
system in which the government controls the factors of production and makes all decisions about their use
an economic system based on free enterprise, in which businesses are privately owned, and production and prices are determined by supply and demand
free enterprise market economy where people carry on their economic affairs freely, but are subject to some government intervention and regulation
economic system that relies on tradition, custom, or ritual to decide questions of production and consumption of goods and services
an arrangement that allows buyers and sellers to exchange things
centrally planned economy
economic system in which the central government makes all decisions on the production and consumption of goods and services
What does the Circular Flow diagram represent?
transfer of goods, services and money in an economy
What is different about a Circular Flow diagram for a mixed economy?
government is in the middle
Advantages and disadvantages of a traditional economy.
Advantages: predictable, everyone knows their role, traditions and customers answer economic questions
Disadvantages: lacks advanced technology, people lack choice and lacks security (relies heavily on environmental conditions)
Examples of traditional economy.
Native American tribes, parts of Asia, Africa and South America and the Middle East
Advantages and disadvantages of a command economy.
Advantages: change can occur easily, predictable, everyone has a job
Disadvantages: little consumer choice, no competition, little individual freedom
Examples of command economy.
China, North Korea, Vietnam, Cuba, and former Soviet Union
Advantages of a market economy.
Advantages: economic efficiency (responds quickly to change); economic freedom (high level of personal choice); economic growth (competition leads to innovation); wide variety of goods and services to meet consumer wants
Examples of market economy.
No economy is as true market economy because every economy has a degree of government intervention.
Advantages and disadvantages of mixed economy.
Advantages: government and individuals share decision making, individuals own factors of production, government regulates factors of production, government meets basic needs
Examples of mixed economy.
United States, United Kingdom, Canada, Singapore, Hong Kong
What is the government's role in a mixed economy?
intervenes to keep order, provide goods and services that the market place does not (examples: roads, bridges, schools, safety net such as unemployment benefits and food stamps)
Define economic efficiency.
using our limited resources wisely
Define economic freedom.
freedom from government intervention in the production and distribution of goods and services
Define economic security and predictability.
guaranteeing that people have jobs, health care, and other things that are considered necessities of life; provides a safety in times of economic disasters
Define economic equity.
having goods and services shared as equally as possible among the people in a society
Define economic growth and innovation.
innovation such as improvements in technology lead to economic growth and economic growth leads to a higher standard of living