Economics L4

Mixed Economy

An economy having elements of both market and command features.

Land/Natural Resources

Gifts of nature that can be used to produce goods and services; for example, oceans, air, mineral deposits, virgin forests, and actual fields of land. When investments are made to improve fields of land or other natural resources, those resources become, in part, capital resources.

Laissez-faire

French term meaning "leave it alone"; the idea that government should have a limited role in a free market economy and should allow market forces to set prices and allocate resources.

Command Economic System

An economy in which most economic issues of production and distribution are resolved through central planning and control; government answers the basic economic questions.

Traditional Economic System

An economy in which customs and habits from the past are used to resolve most economic issues of production and distribution.

Capital

Resources and goods made and used to produce other goods and services. Examples include buildings, machinery, tools, and equipment.

Free Market

Economic system in which individuals own the factors of production and answer the basic economic questions.

Entrepreneurship

Human resources that assume the risk of organizing the other factors of production to produce goods and services.

Invisible Hand

A figure of speech representing the idea that firms and individuals making decisions in their own self-interest will at the same time create economic order and promote society's interests; coined by Adam Smith.

Labor

The quantity and quality of human effort available to produce goods and services.

3 economic questions

What should we produce?

How should we produce it?

For whom are we producing?

Pure capitalism

free market economy. government not involved at all

Smith beleived the gov should provide

defense

infastructure

enforce contracts

Negative Externality

Something bad that affects someone who isn’t involved with the production or consumption of a good