Pure Capitalism & Market System – Lecture Review

19 Question-and-Answer flashcards covering definitions, principles, and key features of pure capitalism and the market system.

What two factors primarily differentiate economic systems?

1) Who owns the factors of production, and 2) The methods used to motivate efficient coordination of economic activity.

Define a market system (pure capitalism).

An economic system in which property resources are privately owned and economic activity is guided by the ‘invisible hand’ of markets.

List the six core features of pure capitalism.

1) Private property ownership, 2) Freedom of enterprise and choice, 3) Self-interest/profit motive, 4) Competition & consumer sovereignty, 5) Reliance on the market system, 6) Limited role of government.

What is meant by private property in economics?

The right of individuals and firms to obtain, own, control, employ, and dispose of property resources as they see fit.

What legal protection does copyright law provide?

It protects authors, developers, and publishers (e.g., books, software) from unauthorized copying of their work.

What exclusive right does a patent grant, and for how long?

It grants inventors the exclusive right to profit from a new invention for 20 years from the patent application date.

Explain the concept of creative destruction.

The process by which new products and production methods create economic growth while simultaneously rendering existing technologies or products obsolete.

What is meant by ‘freedom of enterprise’?

Firms are free to obtain resources, use them to produce products of their choice, and sell those products in markets of their choice.

Define ‘freedom of choice.’

Owners of resources are free to employ or dispose of them as they wish, and consumers may spend their income in the way they believe yields the greatest benefit.

What constitutes competition in a market?

Independent buyers and sellers interact, with the freedom for both to enter or exit the market at will.

How is self-interest described in a capitalist system?

Each property owner, firm, worker, or consumer seeks the outcome they perceive as most beneficial to themselves.

What does consumer sovereignty mean?

Consumers ultimately determine which goods and services are produced by deciding how to spend their income.

Give three ‘other’ features commonly associated with capitalism.

Extensive use of technology, widespread education/literacy, and free trade (others include specialization, money use, efficient financial institutions, competitive markets).

State three reasons specialization increases economic efficiency.

1) Exploits differences in abilities, 2) Allows learning by doing, 3) Saves time, including through geographic specialization.

Identify the three primary functions of money.

Medium of exchange, unit of account, and store of wealth (value).

What is the right of eminent domain?

The government’s power to confiscate private property for public benefit, typically with compensation.

In pure capitalism, what is the government’s economic role?

Limited—primarily to protect property rights, enforce contracts, and provide certain public goods.

Why is the ‘invisible hand’ important in a market system?

It refers to self-interested actions of individuals and firms that unintentionally promote overall economic efficiency and societal welfare.

How do intellectual-property protections (copyrights & patents) support capitalism?

They incentivize innovation by allowing creators and inventors to profit from their work, fostering technological progress and economic growth.