Chapter 3 - Exchange and Markets

Patents

________ increase the profitability of inventions, encouraging firms to develop new products and production processes.

market system

The ________ is based on exchanges between strangers.

Innovation

________: A specialized worker gains insights into a particular task that leads to better production methods.

Insurance

________ reduces the risk entrepreneurs face.

Adam Smith

________ noted that specialization actually increased productivity through the division of labor.

Repetition

________: The more times a worker performs a particular task, the more proficient the worker becomes at that task.

export

A(n) ________ is a product produced in the home country and sold in another country.

safety net

A(n) ________ is created to guarantee a minimum income to people who suffer from job losses, poor health, or bad luck.

Principle of Voluntary Exchange

________: a voluntary exchange between two people makes both people better off.

division of labor

Differences in productivity result from differences in innate skills and the beliefs associated with the ________.

relative scarcity

Prices provide signals about the ________ of a product and help an economy respond to scarcity.

Principle of Opportunity Cost

________: The opportunity cost of something is what you sacrifice to get it.

Specialization

________ and exchange result from differences in productivity that lead to comparative advantage.

Absolute Advantage

________: The ability of one person or nation to produce a product at a lower resource cost than another person or nation.

Private insurance

________ works when enough low- risk people purchase insurance to cover the costs of reimbursing the high- risk people.

market system

Under a(n) ________, decisions are guided by prices of inputs and outputs and made by the millions of people who already have information about consumers desires, production technology, and resources.

safety net

The ________ includes programs that redistribute income from rich to poor, from the employed to the unemployed.

market system

In a(n) ________, prices provide individuals with the information they need to make decisions.