| A | B |
|---|
| Market Economy | an economic system in which production and prices are determined by unrestricted competition between privately owned businesses. |
| Command Economy | an economy in which production, investment, prices, and incomes are determined centrally by a government. |
| Traditional economy | relies on customs, history, and time-honored beliefs. Tradition guides economic decisions such as production and distribution. |
| Mixed economy | system that combines characteristics of market, command and traditional economies.1 It benefits from the advantages of all three while suffering from few of the disadvantages. |
| Economies must answer three basic questions: | What should we produce? How should we produce it? For whom should we produce it? |
| Characteristics of A Traditional Economy | It clearly answers the three questions of economics. Produces what best meets the needs for survival. Production methods are the same as they have always been. |
| Types of Command Economies | Socialism, Communism, Authoritarian |
| Socialism | Gov’t owns some or all of the factors of production. |
| Communism | Extreme form of Socialism which does not allow for the ownership of private property and little to no political freedom. |
| Authoritarian | Requires absolute obedience to authority. |
| Impacts of Command Economies | Seek to provide for everyone. Leaders in command economies use the nation’s resources to produce items that may not make money in a market economy like certain medicines. |
| Private Property Rights | theoretical and legal ownership of resources and how they can be used. These resources can be both tangible or intangible and can be owned by individuals, businesses, and governments. |
| Capitalism | system based on the private ownership of the means of production and their operation for profit. |
| Consumer sovereignty | the theory that consumer preferences determine the production of goods and services. This means consumers can use their spending power as 'votes' for goods. In return, producers will respond to those preferences and produce those goods. |
| Specialization | Each member of an organization or economy, for example, has a unique set of talents, abilities, skills, and interests that make her uniquely able to perform a set of tasks. |
| Features of Market Economies | When a buyer and seller agree to do business together, in which they anticipate that benefits will outweigh the costs, mostly based on an exchange of a product for money. |
| Impacts of Market Economies | Better knowledge of the resources locally lead to better decisions and greater productivity which in turn can lead to better profits because of avoiding inefficiencies. |
| Modern Mixed Economies | Has both private sector and gov’t owned businesses. Also gov’t plays a role through regulations to ensure the markets continue to work. |
| Trends of Modern Economies | Changes in Ownership- Nationalize (private to govt.) Privatize (govt. to private). |
| Division of Labor | Workers perform only one step or a few steps in a larger production process |
| Perfect Competition | A market structure in which a large number of relatively small firms produce and sell identical products and in which there are no significant barriers to entry into or exit from the industry. Firms in this type of competition are price takers and in the long run will earn only normal profits. |
| Four main market structures | Perfectly Competitive, Monopolistic Competition, Oligopoly, Monopoly |
| Market structure | The ways that competition occurs, based on the number of firms, the similarity of the products being sold and the ease of entry for new firms or exit for existing firms. |
| Competition | When producers would each like to sell their goods or services to the same customers. |
| Laissez faire | Abstention by governments from interfering in the workings of the free market. |
| Monopoly | A market structure in which there is a single supplier of a good or service. A firm that is the single supplier of a good or service for which there are no close substitutes. |
| Oligopoly | A market structure in which a few, relatively large firms account for all or most of the production or sales of a good or service in a particular market, and where barriers to new firms entering the market are very high. |
| Monopolistic Competition | A market structure in which slightly differentiated products are sold by a large number of relatively small producers, and in which the barriers to new firms entering the market are low. |
