Economic Systems Vocab Quiz

Economic System

The structure of methods and principles that a society uses to produce and distribute goods and services.

Factor Payment

The income people receive in return for supplying factors of production.

Profit

The amount of money a business receives in excess of its expenses.

Safety Net

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

Standard of Living

level of economic prosperity.

Traditional Economy

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

Innovation

the process of bringing new methods, products, or ideas into use.

Market

any arrangement that allows buyers and sellers to exchange things

Specialization

The concentration of the productive efforts of individuals and businesses 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.

Household

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

Firm

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

Factor Market

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

Product Market

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

Self-interest

an individual’s own personal gain

Incentive

The hope of reward or fear of penalty that encourages a person to behave in a certain way.

Competition

The struggle among producers for the dollars of consumers.

Invisible Hand

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

Consumer Sovereignty

The power of consumers to decide what gets produced.

Centrally Planned Economy

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

Command Economy

Another name for a centrally planned economy.

Socialism

A range of economic and political systems based on the belief that wealth should be distributed evenly throughout a society.

Communism

A political system in which the government owns and controls all resources and means of production and makes all economic decisions.

Authoritarian

describes 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.

Private Property

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

Mixed Economy

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

Economic Transition

A period of change in which a nation moves from one economic system to anothr.

Privatization

The process of selling businesses or services operated by the government to individual investors, and then allowing them to compete in the marketplace.

Free Enterprise System

An economic system characterized by private or corporate ownership of capital goods.