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Economic System
The structure of methods and principles that a society uses to produce and distribute goods and services.
Standard of Living
Level of economic prosperity.
Traditional Economies
An economic system that relies on habit, custom, or ritual to decide the three basic economic questions (what to produce, how to produce it, who to produce for).
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 (Capitalism)
An economic system in which decisions on the three key economic questions are based on voluntary exchange in markets.
Factor Market
The place where businesses buy the resources they need to make goods and services from households.
Product Market
The arena of exchange in which households purchase goods and services from firms.
Adam Smith
An 18th-century Scottish economist known as the 'father of economics,' introduced concepts like the 'invisible hand' and division of labor, supporting free markets and minimal government intervention.
Consumer Sovereignty
The power of consumers to decide what gets produced.
Command Economy
An economic system where the government has full control over production, distribution, and pricing of goods and services.
Mixed Economy
Economic system that has some market-based elements and some level of government involvement.
Privatization
The process of selling businesses or services operated by the government to individual investors and allowing competition in the marketplace.
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.
Laissez Faire
The doctrine that government generally should not intervene in the marketplace.
Profit Motive
The incentive that drives individuals and business owners to improve their material well-being.
Voluntary Exchange
The principle that people may decide what, when, and how they want to buy and sell.
Gross Domestic Product
The total value of all final goods and services produced in a country in a given year.
Business Cycle
A period of macroeconomic expansion or growth followed by a period of contraction or decline.
Patent
A government license that gives the inventor of a new product the exclusive right to produce or sell it.
Copyright
A government license that grants an author exclusive rights to publish and sell creative works.
Public Good
A shared good or service for which it would be inefficient or impractical to make consumers pay individually.
Infrastructure
The basic facilities that are necessary for a society to function and grow.
Externality
An economic side effect of a good or service that generates benefits or costs to someone other than the person deciding how much to produce or consume.
