Economic Systems Vocabulary

Economic System

A structure that determines how resources are allocated, goods and services are produced, and the distribution of wealth is managed within a society. It includes various types such as capitalism, socialism, and mixed economies.

Factor Payments

The income people receive in return for supplying factors of production like labor, land, and capital.

Profit

The financial gain made after all costs have been subtracted from revenue, representing the reward for entrepreneurial risks.

Safety Net

A collection of services provided by the government to ensure that individuals and families have a minimum standard of living during times of need, such as unemployment benefits and social security.

Standard of Living

The level of wealth, comfort, and access to goods and services available to individuals or groups in a society, reflecting their quality of life.

Innovation

The process of developing new ideas, products, or methods that improve efficiency, productivity, or quality in an economic context.

Traditional Economy

An economic system that relies on customs, history, and time-honored methods to make decisions about production and consumption. It often emphasizes subsistence farming and communal sharing.

Command Economy (Centrally Planned Economy)

An economic system where the government makes all decisions regarding the production and distribution of goods and services, often centralizing control in one authority.

Free Market Economy

An economic system where prices are determined by unrestricted competition between privately owned businesses, allowing consumer choice to dictate production and distribution.

Mixed Economy

An economic system that incorporates elements of both command and market economies, allowing for a balance between government regulation and free market principles. It often features a combination of private and public ownership.

Factor Market

A marketplace where factors of production, such as labor and capital, are bought and sold, facilitating the input necessary for creating goods and services.

Product Market

A marketplace where finished goods and services are bought and sold, enabling consumers to purchase goods produced by businesses.

Socialism

An economic system where the means of production are owned and regulated by the government, with the aim of promoting equal distribution of wealth and resources among the population.

Communism

An economic system in which the government owns all means of production and distribution, eliminating private property to achieve a classless society. The government makes all of the economic decisions.

Authoritarian

A political system where a single entity or leader possesses significant control over the government and often suppresses opposition, limiting individual freedoms and democratic processes. L

Laissez Fair

Is an economic philosophy of free-market capitalism that opposes government intervention in business affairs, advocating for minimal regulation.

Private Property

Refers to assets and belongings that are owned by individuals or corporations, allowing them to control and manage their use, unlike communal or state ownership.

Intellectual Property

Refers to creations of the mind, such as inventions, literary and artistic works, designs, symbols, names, and images used in commerce. It grants rights to the creators to control and benefit from their creations.

Privatization

Is the process of transferring ownership of a business, public service, or public property from the government to private individuals or organizations.

Consumer Sovereignty

Is the idea that consumers have the power to dictate the types and quantities of goods and services produced based on their preferences and spending choices.

Three Economic Questions

These are the fundamental questions every economy must answer: What to produce? How to produce? For whom to produce?

Capitalism

Is an economic system characterized by private ownership of the means of production and their operation for profit, with minimal government intervention in the economy.

Full Employment

Is the condition in which all available labor resources are being used in the most efficient way possible, resulting in a low unemployment rate.