Economics Systems Vocab Quiz

Factor payment

Income people receive in return for supplying factors of production

Profit

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

Safety net

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

Standard of living

Level of economic prosperity

Innovation

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

Traditional economy

Economic system that answers the three economic questions based on traditions and customes

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 the voluntary exchange in markets

Household

A person or group 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 firms purchase the factors of production from households

Product market

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

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 powers of consumers to decide what gets produced

Command economy

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

Socialism

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

Communism

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

Laissez faire

The doctrine that government generally should not intervene in the marketplace

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 another

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 in which investments in firms are made in a free market by private decision rather than by state control