Unit 1: Basic Economic Concepts - Resource Allocation and Economic Systems

Vocabulary flashcards covering key terms from scarcity, economic systems, and market vs. command economies.

Scarcity

There is not enough resources for everyone; society must decide how to allocate resources.

Economic system

The method a society uses to produce and distribute goods and services.

Three Economic Questions

What goods and services should be produced? How should they be produced? Who consumes these goods and services?

Command (Centrally Planned) Economy

An economy where the government owns all resources and answers the three economic questions; examples include Cuba, North Korea, the former Soviet Union, and China.

Free Market Economy (Capitalism)

An economy with little government involvement; individuals own resources and answer the three economic questions; profit incentive and competition guide production.

Mixed Economy

A system with free markets but some government intervention; nearly all countries, including the US, are mixed economies.

Laissez-faire

The belief in minimal government involvement in the economy; literally 'let it be'.

The Invisible Hand

The idea that individuals pursuing their own self-interest and competition lead to society’s needs being met without much government intervention.

Profit incentive

The opportunity to earn profits that motivates people to produce goods and services efficiently.

Resource allocation

The process of distributing limited resources among competing uses.

Central planning

Decision-making by the government about what to produce, how to produce, and for whom.

Productivity

Output per unit of input; higher productivity leads to greater wealth and economic growth.

Competition

Rivalry among producers that helps regulate prices, improve quality, and expand product variety.

Property rights

Legal rights to own, use, and dispose of resources; essential for economic freedom.

Economic Freedom Index

Heritage Foundation’s measure of economic freedom across 10 areas for many countries, on a 1–100 scale.

Government intervention

Active involvement by the government in the economy, as seen in mixed economies.