| A | B |
|---|
| 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, or capital |
| Safety Net | Government programs that protect people experiencing unfavorable economic conditions |
| Standard of Living | Level of economic prosperity |
| Traditional Economy | Economic system that relies on habit, custom, or ritual to decide questions of production and consumption of goods and services |
| 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 that combines tradition and the free market with limited government involvement |
| Specialization | The concentration of the productive efforts on 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 | Market 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 | One's own personal gain |
Circular Flow Diagram of a Market Economy,  | |
| Incentive | Expectation that encourages people 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 power of consumers to decide what gets produced |
| Socialism | A social and political philosophy based on the belief that democratic means should be used to evenly distribute wealth throughout a society |
| Communism | A political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government |
| Authoritarian | Requiring strict obedience to an authority, such as a dictator |
| 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 | The doctrine that states that government generally should not intervene in the marketplace |
| Free Enterprise | An economic system characterized by private or corporate ownership of capital goods; investments that are determined by private decision rather than by state control; and determined in a free market |
| 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 state-run firms to individuals |
