Unit 2: Economic Systems Vocabulary

economic system

The set of mechanisms and institutions that resolves the what, how, and for whom questions for an economy

safety net

a set of government programs that protect people who face unfavorable economic conditions

traditional economy

an economic system that relies on habit, custom, or ritual to decide the three key economic question

free market economy

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

factor payment

The income people receive in return for supplying factors of production

standard of living

level of economic prosperity

market

a place where buyers and sellers come together to exchange things

household

is a person or a group of people living in a single residence

profit

the amount of money a business receives in excess of its expenses

innovation

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

specialization

concentration of the productive efforts of individuals and businesses on a limited number of activities

firm

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

factor market

the arena of exchange in which firms purchase the factors of production from households

incentive

the hope of reward of fear of penalty that encourages a person to behave a certain way

consumer sovereignty

the power of consumers to decide what gets produced

socialism

economic and political systems based on the belief that wealth should be distributed evenly throughout society

product market

arena of exchange in which households purchase goods and services from firms

competition

the struggle among producers for the dollars of consumers

centrally planned economy

an economic system in which the government makes all decisions on the three key economic questions

self-interest

an individual's own personal gain

invisible hand

a term coined by Adam Smith to describe the self-regulating nature of the marketplace

authoritarianism

describing a form of government that limits individual freedoms and requires strict obedience from its citizens

laissez faire

the doctrine that government generally should not intervene in the marketplace

economic transition

a period of change in which a nation moves from one economic system to another

mixed economy

a market-based economic system in which the government is involved to some extent

private property

property that is owned by individuals or companies, not by the government or people as a whole

privatization

the process of selling businesses or services operated by the government to individual