| 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. 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. |
| Division of Labor | Workers perform only one step or a few steps in a larger production process |
| Laissez faire | Abstention by governments from interfering in the workings of the free market. |
| Circular flow model | A diagram that shows the circular movement of money, resources, and goods and services among households and producers in an economy |
| Societies goals | Economic: freedom, efficiency, equity, growth, security and stability |
| Factor market | A market in which households sell land, labor, and capital to firms |
| firm | An organization that uses resources to produce and sell goods or services; a business |
| Key characteristics of US Economic System | Free Enterprise System, Economic Freedoms, Competition, Equal Opportunities, Binding Contracts, Property Rights |
| Government's role in a mixed economy | Protection, regulation, public benefits and public works |
| Government intervention in mixed economies | Protecting property rights and contracts, promoting general welfare, preserving competition, protection for consumers, workers and environment, and stabilizing the economy |
| Four ways specialization encourages trade | Voluntary exchange, barter, coincidence of wants, & money |
| Full employment | A condition in which everyone who wants to work can find a job |
| Intellectual property | Creations of the mind that have commercial value, such as inventions and works of art |
| Copyright | A legal protection that gives creators and publishers of books, music, software, and artistic works the sole right to distribute, perform, or display that work |
| Patent | A legal protection that gives inventors the sole right to make, use, or sell their inventions for a fixed number of years |
| Product market | A market in which firms sell goods and services to households |
| profit motive | The desire to make a profit |
| Prices provide incentives to both | buyers and sellers. |
| A price ceiling is a legally established | maximum price |
| Quantity Demanded | The amount of a good or service people will buy at a given price in a given period of time. |
| Quantity Supplied | The amount of a good or service sellers are willing and able to offer at a given price in a given period of time. |
| A price floor is a | legally established minimum price. |
| Economists call this outcome a surplus. | Quantity supplied in the market (which is encouraged by the higher price) exceeds quantity demanded (which is discouraged by the higher price). |
| Shortage | The situation that results when the quantity demanded for a product exceeds the quantity supplied. Generally happens because the price of the product is below the market equilibrium price. |
| Markets | Places, institutions or technological arrangementswhere or by means of which goods or services are exchanged. |
| Competition | Refers to the situation when producers would each like to sell their goods or services to the same customers. |
| There are four main market structures. | Perfectly Competitive, Monopolistic Competition, Oligopoly, Monopoly |
| 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 perfect competition are price takers and in the long run will earn only normal profits. |
| 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. |
| 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. Some oligopolies produce homogeneous products; others produce heterogeneous products. |
| Monopoly | A market structure in which there is a single supplier of a good or service. Also, a firm that is the single supplier of a good or service for which there are no close substitutes; also known as a monopolist. |
| absolute advantage | the condition that exists when someone can produce a good or service using fewer resources than someone else |
| comparative advantage | the condition that exists when someone can produce a good or service at a lower opportunity cost than someone else |
| Three main ways trade makes us wealthier | It puts goods in the hands of those who value them. It increases the quantity and variety of goods. It lowers the cost of goods. |
