Studied by 8 people
Economic system
A particular set of institutional arrangements + coordinating mechanism used to respond to the economizing problem
Command system
Socialism/communism; gov’t owns most property + economic decision-making occurs through central economic plan
Market system
Capitalism; private ownership of resources + use of markets/prices to coordinate economic activity
Private property
Private individuals + firms own most property resources; encourages investment, innovation, economic growth
Freedom of enterprise
Entrepreneurs + businesses can obtain resources to produce + sell goods
Freedom of choice
Owners can employ property/money as they see fit; consumers can buy goods and services that best satisfy their wants
Self-interest
Each economic unit tries to achieve its own particular goal, usually delivering something of value to others
Competition
Between economic units; based on freedom of choice in pursuit of monetary return; spreads economic power between businesses + households
Markets
Institution/mechanism that brings buyers + sellers into contact
Specialization
Use of resources to produce a few goods instead of an entire range
Division of labor
Human specialization
Medium of exchange
Function of money; makes trade easier
Barter
Swapping goods and services for each other; requires coincidence of wants between buyers and sellers
Money
Convenient social invention to facilitate exchanges of goods and services
Consumer sovereignty
Consumers spend income on goods they are willing + able to buy
Least cost production
________- Most economically efficient techniques of production.
“Dollar votes”
Consumers using dollars to show what goods + services they want in the market; determine which industries survive and fail
Creative destruction
Creation of new products + production methods destroys market positions of firms relying on existing products and older business ways
“Invisible hand”
As firms seek to further their own self-interest in a market system, they simultaneously promote social interests
Circular flow diagram
Shows repetitive flows of goods, services, resources, and money through the economy
Resource market
Where resources by households sold to businesses
Product market
Where goods and services produced by businesses sold to households
