Economic Systems Flashcards

Flashcards for key vocabulary related to economic systems.

Market economy

An economic system that solves the economic problems of 'what', 'how', 'for whom' and 'how many' to produce through the free-market mechanism.

Mechanism

The way in which something works, or the method or procedure it uses to work.

Externality

This applies when some of the costs or benefits of an activity spill over to third parties.

Private property rights

Owns the factors of production. They also own most of the private property, except for public property owned by the government

Freedom of enterprise

Business enterprises can use their own initiative to obtain and use (allocate) resources, to decide which and how many products and services to produce, to decide what to pay employees and to sell these products in the markets they prefer

Freedom of choice

Owners of property and resources can use resources as they choose. Consumers are free to spend their income on any goods and services, local or imported, in any way that best satisfies their needs and wants.

Self-interest and the profit motive

Business enterprises try to maximise profits or minimise losses. Suppliers of the other factors of production try to maximise income. Households try to maximise satisfaction

Competition

When there are large numbers of sellers, no single producer can control the price or market supply. When there are large numbers of buyers, no single consumer can control the price or market demand.

Centrally planned economic system

An economic system in which the state directs most aspects of the country's economic activities.

Intentionally

When something is done deliberately, or on purpose, and not by accident.

Mixed economic system

A blend of market and planned economies in which resources are allocated on the decisions of the private sector and the government.

Bureaucracy

Complex rules and regulations that are applied rigidly.

Corruption

Dishonesty and abuse of power for personal gain.

Social services

Services committed to the pursuit of social welfare, social change and social justice for improved living conditions.

Economic services

Services that entail government expenditure that relates to the regulation and efficiency of the private sector.

International competitiveness

A nation's ability to compete successfully internationally and to sustain improvements in real output and wealth.