The Three Key Economic Questions

Economic system

structure goods and services

Factor payments

income people receive

Profit

The financial gain made in a transaction

Safety net

programs that protect people

Standard of living

level of economic prosperity

Innovation

the process of bringing new methods, products, or ideas into use

Traditional economy

traditions and rituals answer the basic questions of what, how, and for whom

market

buyers sellers exchange

Specialization

A focus on a particular activity or area of study

free market economy

an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets

Household

people living together

Firm

an organization that uses resources to produce a product, which it then sells

Factor market

household arena exchange

Product market

sold firms household

Adam Smith

wrote the wealth of nations

Self-interest

own personal gain

Incentive

something that induces a person to act

Competition

the struggle between organisms to survive in a habitat with limited resources

Price competition

focuses on the sale price of a product

non-price competition

Businesses stress products, services and financing

consumer sovereignty

the power of consumers to decide what gets produced

Centrally planned economy

a ground plan that is symmetrical in all directions

command economy

An economic system in which the government controls a country's economy.

Socialism

A system in which society, usually in the form of the government, owns and controls the means of production.

Communism

A theory or system of social organization based on the holding of all property in common, actual ownership being ascribed to the community as a whole or to the state.

Authoritian

Goverment maintains strict control over people