Economics Chapter 2 Vocab

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Economic system

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30 Terms

1

Economic system

the structure of methods and principles a society uses to produce and distribute goods and services

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2

Factor payment

the income people receive in return for supplying factors of production

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3

Profit

the amount of money a business receives in excess of its expenses

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4

Safety net

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

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5

Standard of living

level of economic prosperity

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6

innovation

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

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7

Traditional economy

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

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8

Market

any arrangement that allows buyers and sellers to exchange things

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9

Specialization

the concentration of the productive efforts of individuals and firms on a limited number of activities

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10

Free market economy

an economic system in which decisions on the three key economic questions are based on voluntary exchange in markets

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11

Household

a person or group of people living in a single residence

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12

Firm

an organization that uses resources to produce a product, which it then sells

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13

Factor market

the arena of exchange in which firms purchase the factors of production from households

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14

Product market

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

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15

Self-interest

an individual's own personal gain

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16

incentive

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

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17

Competition

the struggle among producers for the dollars of consumers

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18

Invisible hand

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

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19

Consumer sovereignty

the power of consumers to decide what gets produced

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20

Centerally planned economy

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

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21

Command economy

another name for a centrally planned economy

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22

Socialism

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

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23

Communism

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

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24

Authitorian

describing a form of government that limits individual freedoms and requires strict obedience from its citizens

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25

Laissez-faire

the doctrine that the government should not intervene in the marketplace

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26

Private property

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

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27

Mixed economy

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

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28

Economic transition

a period of change in which a nation moves from one economic system to another

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29

Privatization

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

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30

Free enterprise system

an economic system characterized by private or corporate ownership of capital goods

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