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Chapter 2+3 Vocab Words
vocab words
53
Economics
Not Applicable
12/08/2009

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Term
economic system
Definition
the way a society uses its scarce resources to satisfy its people's unlimited wants
Term
command economy
Definition
form of economy in which the government decides what goods and services will be produced, how they will be produced, and how they will be distributed.
Term
market economy
Definition
an economic system in which individual choice and voluntary exchange direct economic decisions
Term
traditional economy
Definition
economic system in which people produce and distribute goods according to customs handed down from generation to generation
Term
advantages of traditional economies
Definition
clearly answers who will produce, what will be produced, and who gets it

little disagreement over economic goals and roles
Term
disadvantages to traditional economy
Definition
methods not efficient, low productivity, low standard of living
Term
centrally planned economy
Definition
system in which central government officials make all economic decisions
Term
socialism
Definition
economic system in which the government owns some or all of the factors of production
Term
communism
Definition
economic system in which the government owns all of the factors of production and there is little or no political freedom
Term
authoritarian system
Definition
system that requires absolute obedience to those in power
Term
advantages of a command economy
Definition
provides for everyone and can make unprofitable items
Term
disadvantages of a command economy
Definition
little understanding of local conditions, little motivation to improve productivity, no incentive for workers to use resources wisely, shortages, individual rights curtailed
Term
private property rights
Definition
the rights of individuals and groups to own property
Term
property
Definition
everything that an individual owns
Term
market
Definition
any place where people buy and sell goods and services
Term
fundamentals of a market economy
Definition
private property and markets, limited government involvement, voluntary exchange in markets, competition and consumer sovereignty, specialization and markets
Term
laissez faire
Definition
principle that the government should not interfere in the marketplace
Term
capitalism
Definition
economic system that is based on private ownership of the factors of production
Term
voluntary exchange
Definition
a trade in which both traders believe that what they are getting is worth more than what they are giving up
Term
profit
Definition
financial gain that a seller makes from a business transaction
Term
competition
Definition
all the actions sellers, acting independently, do to get buyers to purchase their products
Term
government sovereignty
Definition
idea that consumers have ultimate control over what is produced because they are free to buy what they want and reject what they don't want
Term
specialization
Definition
situation in which people concentrate their efforts in the activities that they do best
Term
circular flow model
Definition
tool economists use to understand how market economies operate
Term
product market
Definition
market where goods and services are bought and sold
Term
factor market
Definition
market for the factors of production--land, labor, capital and entrepreneurship
Term
advantages of market economies
Definition
economic and political freedom, profit motive, competition
Term
disadvantages to market economies
Definition
no mechanism for providing public goods and services due to lack of profit. Unequal distribution of wealth and no care for jobless.
Term
mixed economy
Definition
economic system that has elements of traditional, command, and market economies
Term
nationalize
Definition
changing from private ownership to public ownership
Term
privatize
Definition
change from government or public ownership to private ownership
Term
global economy
Definition
all the economic interactions that cross international boundaries
Term
free enterprise system
Definition
another name for capitalism, based on private ownership of productive resources
Term
open opportunity
Definition
ability of everyone to take part in the market of free choice
Term
legal equality
Definition
situation in which everyone has the same economic rights under the law
Term
free contract
Definition
a situation in which people decide which legal agreements to enter into
Term
profit motive
Definition
force that encourages people and organizations to improve material wellbeing from economic activities
Term
profit
Definition
money left over after costs of producing a good or service have been subtracted from the revenue gained by selling the good or service
Term
modified free enterprise economy
Definition
free enterprise economic system with some government involvement
Term
market failure
Definition
occurs when people who are not a part of a marketplace interaction benefit from it or pay part of its costs
Term
public goods
Definition
products provided by federal, state and local governments, and consumed by the public as a group
Term
free rider
Definition
a person who avoids paying for a good or service but benefits from that good or service anyway
Term
infrastrucutre
Definition
all the goods and services that are necessary for the functioning of society
Term
externality
Definition
side effect of a product that affects someone other than the producer or the buyer
Term
negative externality
Definition
externality that imposes costs on people who were not involved in the original activity
Term
positive externality
Definition
externality that creates benefits for people who were not involved in the original economic activity
Term
subsidy
Definition
government payment that helps cover the cost of an economic activity that has potential to benefit the public as a whole
Term
safety net
Definition
government programs designed to protect people from economic hardship
Term
public transfer payment
Definition
transfer payment in which the government transfers income from taxpayers to recipients who do not provide anything in return
Term
transfer payment
Definition
transfers of income from one person or group to another even though the receiver does not provide anything in return
Term
Trends in modern economies
Definition
changes in ownership, increasing global ties
Term
What are the requirements of free enterprise systems?
Definition
Legal equality, open opportunity, free contract
Term
What motivates people to start a business?
Definition
profit motive
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