Flashcards in Economic Systems Test Deck (21)
Define the Circular Flow Model.
-visualizes how all interactive occur in a market economy
-2 decision makers
-households and markets
shows the 2 markets where households and businesses meet
Define Economic System
the way a society uses its scarce resources to satisfy its peoples unlimited wants
Define Factor Market
-market for the factors of production
-businesses purchase the factors they need from the factor market
Define Global Economy
-all economic interactions that cross international boundaries
Define Laissez Faire
-principle that the government should not interfere in the market place
-"Hands off" or "Leave things alone"
-means to change from private ownership to government or public ownership
-means to change from government or public ownership to private ownership
Define Product Market
-market for goods and services
-set of activities in which people buy goods and services
-a situation in which people concentrate their efforts in the activities they do best
-allows people to trade what they can most efficiently produce.
-removes the need for households to be self sufficent
Define Voluntary Exchange
-a trade in which both traders believe what they are getting is worth more than what they are giving up
-based on self interest
what is another name for a command economy?
Where is the real power in the market found in a market economy?
In which type of economy do producers and consumers drive the economy?
Who was Karl Marx and what was his theory?
-a german philosopher that was the "Father of Communism: he cowrote the communist manifesto
-he believed that communism was the way to go
How many pure market economies exist today?
What is a mixed Economy?
-an economic system that has elements of traditional, command, and market economies
-most common type of economy today
Define Command Economy.
the central govt makes all decisions on the production and consumption of goods and services
list positive and negative aspects of a Command Economy
-govt is able to equally distribute resources
-govt works in best interest of everyone
-inefficent based on the:
-unfair and flawed govt decisions
-lack of motivation for people to work
-lack of individual freedom
Define Market Economy
decisions on production and consumption of goods and services are based on voluntary exchanges in markets