Market System and Circular Flow

These flashcards cover key concepts related to the market system, its characteristics, and the implications of economic theories discussed in Chapter 2.

Market System

An economic system where decisions on production and consumption are guided by the interaction of citizens and businesses.

Command Economy

An economic system where the government makes all economic decisions and controls the means of production.

Consumer Sovereignty

The idea that consumer preferences determine the production of goods and services.

Invisible Hand

A metaphor introduced by Adam Smith to describe the self-regulating nature of the marketplace.

Private Property

Legal ownership of resources and goods which allows individuals to use them as they see fit.

Property Rights

Legally enforced rights to use, control, and transfer property.

Profit-and-Loss System

A mechanism in a market economy where profit signals business success and losses signal need for improvement or exit.

Competition

The rivalry among sellers in the market, which drives innovation, improves quality, and keeps prices in check.

Creative Destruction

The process by which new innovation replaces outdated products and services, leading to economic transformation.

Self-Driving Cars

Automated vehicles that are capable of navigating without human input, often cited as an example of creative destruction in the automotive industry.