economics: topic 2

economic system

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

profit

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

safety net

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

traditional economy

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

market

any arrangements that allow buyers and sellers to exchange things

free-market economy

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

factor market

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

product market

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

competition

the struggle among many producers for the dollars of consumers

centrally planned economy

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

command economy

another name for centrally planned economy

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 and makes all economic decisions

laissez faire

the doctrine that government generally should not intervene in the marketplace

intellectual property

creations such as books, songs, or symbols, that consists of ideas rather than physical objects

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 then allowing them to compete in the marketplace

voluntary exchange

the principle that people may decide what, when, and how they want to buy and sell

eminent domain

the right of a government to take private property for public use

macroeconomics

the study of economic behavior and decision-making in a nation’s whole economy

microeconomics

the study of economic behavior and decision-making in small units, such as households and firms

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 macroeconomics expansion, or growth, followed by a period of contraction, or decline

patent

a government license that gives the investor of a new product the exclusive right to produce and sell it

copyright

a government license that grants an author exclusive rights to publish and sell creative works

infrastructure

the basic facilities that are necessary for a society to function and grow

free rider

someone who would not be willing to pay for a certain good or service but who would get the benefits of it anyway if it were provided as a public good

market failure

a situation in which the free market, operating on its own, does not distribute resources efficiently

welfare

government aid for the poor