Economics Systems terms

Command Economy

-Government determines what goods should be produced, how much should be produced and the price at which the goods are offered for sale.

-Rely on powerful central planners to make economic decisions.

-The individual citizen must defer to the leaders on most economic matters.

Market Economy

-Individuals make the economic decisions.

-Government has little to say in what is produced, sold or consumed.

Relies on "the market" to provide enough resources

-Private property is protected by government.

Mixed Economy

- A system that combines characteristics of market & command economies.

Varies widely from country to country.

- Many countries want government to step in when the market operates in ways that society finds unacceptable.

Ex: Child labor laws

Limiting pollution

Regulation of consumer products

- Public Works Projects

Dams, highways, sewer systems, etc.

Tragedy of the Commons

An economic theory that describes when individuals overuse a shared resource, depleting it for everyone's benefit.

Private Property

The exclusive authority to determine how a resource is used, whether that resource is owned by government or by individuals.

Market Failures

When the free-market fails to satisfy society's wants.

-Public Goods (police, public schools, highways)

-Externalities (third person side effects)

-Monopolies

-Unfair distribution of income

Externalities

A third-person side effect. When there are EXTERNAL benefits or external costs to someone other than the original decision maker.

Public Goods

A resource that is available to everyone in a society, and that can be used without reducing its availability for others. Are non-excludable and nonrivalrous

Gross Domestic Product (GDP)

Is the total value of everything produced within a country's borders. When economists talk about the "size" of the economy, they are referring to ‘this’

Fiscal Policy

refers to decisions the government makes about spending and collecting taxes and how these policy changes influence the economy.

Monetary Policy

Is a central bank's actions and communications that manage the money supply. Central banks use this policy to prevent inflation, reduce unemployment, and promote moderate long-term interest rates.

Perverse Incentives

An incentive structure with undesirable results, particularly when those effects are unexpected and contrary to the intentions of its designers.