Economics Chapter 2: Economic Systems Flashcards

A comprehensive set of vocabulary flashcards covering economic systems, market mechanics, centrally planned economies, and mixed economies based on Chapter 2 lecture notes.

economic system

The method used by a society to produce and distribute goods and services.

factor payments

The income people receive for supplying factors of production, such as land, labor, or capital.

profit

The financial gain made in a transaction.

safety net

Government programs that protect people experiencing unfavorable economic conditions.

traditional economy

An economic system that revolves around habit, custom, or ritual to decide what to produce, how to produce it, and to whom to distribute it.

market

An arrangement that allows buyers and sellers to exchange things.

specialization

The concentration of the productive efforts of individuals and firms on a limited number of activities.

free-market economy

An economic system in which decisions on the three key economic questions are based on voluntary exchange in markets; also known as a market economy.

household

A person or group of people living in the same residence.

firm

An organization that uses resources to produce a product, which it then sells.

factor market

A market in which firms purchase the factors of production from households.

product market

The market in which households purchase the goods and services that firms produce.

self-interest

One's own personal gain, which acts as the motivating force in the free market.

incentive

An expectation that encourages people to behave in a certain way, often based on monetary gain.

consumer sovereignty

The power of consumers to decide what is produced.

socialism

A social and political philosophy based on the belief that democratic means should be used to distribute wealth evenly throughout a society.

communism

A political system characterized by a centrally planned economy with all economic and political power resting in the hands of the central government.

centrally planned economy

An economic system in which the central government makes all decisions on the production and consumption of goods and services; also known as a command economy.

laissez faire

The doctrine that states that government generally should not intervene in the marketplace.

mixed economy

A market-based economic system with limited government involvement.