Economics Chapter 2.1-2.2: Scarcity and the Allocation of Resources

Vocabulary flashcards covering the key terms and concepts of market, planned, and mixed economic systems from Chapter 2.

Economic System

The financial institutions, organizations, and mechanisms that influence the economic behavior of a country as a whole, defining how an economy is organized and run.

Market Economy

An economic system with minimum government intervention, where economic decisions are made solely by individuals as producers or consumers (also known as a free enterprise or capitalist economy).

Price Mechanism

The manner in which producers and consumers interact based on price signals to dictate resource allocation and production.

Capital-Intensive Firm

An enterprise that relies more on machines than on labor because it is cheaper and more effective to operate with machinery.

Labor-Intensive Firm

An enterprise that hires more employees than machines to produce goods or provide services.

Consumer Sovereignty

The concept that consumers decide which businesses to buy products from based on the price mechanism.

Negative Externalities

Harmful impacts on society or the environment (such as pollution) caused by enterprise operations focused on profit without government regulation.

Demerit Goods

Harmful goods that individuals overconsume and private companies overproduce (such as cigarettes) due to a lack of awareness regarding their damaging effects.

Planned Economy

An economic system (also known as a command economy) where the state owns resources and the government controls all major economic decisions regarding production and prices.

Mixed Economy

An economic system that combines features of planned and market economies, where decision-making is shared between the state and private individuals.

Private Sector

The segment of an economy comprising industries and enterprises owned and operated by private citizens.

Public Sector

The segment of an economy comprising public enterprises and services controlled and operated by the government.

Public Goods

Unprofitable goods and services provided equally to everyone by the government through taxation (e.g., streetlights, police force) that market forces would fail to produce.

Merit Goods

Highly beneficial goods and services (e.g., education, healthcare, public libraries) that would be underproduced and underconsumed if left solely to private market forces.